Patrick Njoroge: Launch of the Foreign Investment Survey 2016
Remarks by Dr Patrick Njoroge, Governor of the Central Bank of Kenya, at the launch of the
Foreign Investment Survey 2016, Nairobi, 4 August 2016.
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Good morning!
It is a great honor to welcome you this morning to the launch of Foreign Investment Survey
(FIS) 2016, the fourth since the launch of the project in 2010. I am grateful to each one of
you for your attendance. I also thank the Cabinet Secretary, Ministry of Devolution and
Planning, for finding time to be with us. I acknowledge the support from the Government, and
the strong partnership between the key collaborating institutions in funding and organizing
the FIS.
This year's FIS theme improving the quality of cross-border financial flows for better decision
making is quite relevant to our circumstance and in the context of the current global
developments, which I will shortly turn to. It is a fact that globalization and
interconnectedness of the world economy has become an integral part of policymaking
today. The challenges we face in the current economic climate, call for data-driven
policymaking, requiring accurate and timely data for effective policy action.
Financial integration is bringing about steadily rising cross-border financial flows and the
accumulation of such inward and outward foreign direct investment (FDI), portfolio
investment and financial derivatives. Today, we seek to raise awareness among the private
enterprises that will be covered during the FIS 2016, on the importance of quality data and
information, and also on achieving broader coverage.
This exercise is significant as it will enable us collect the relevant disaggregated data for
analysis, and also to understand the dynamics of cross border financial flows. Examining the
details behind the aggregate statistics enriches our understanding of economic
developments, and at the same time increases our flexibility in responding to unforeseen
challenges in an appropriate manner.
According to UNCTAD's 2016 World Investment Report, global FDI flows increased by
38 percent to US$ 1.76 trillion in 2015, though still 10 percent below the peak in 2007. This
improvement mostly reflects increased cross-border mergers and acquisitions. In 2016, FDI
flows are expected to decline by between 10 and 15 percent against the backdrop of weak
global growth which has had a direct impact on the profitability of enterprises.
Kenya continues to be a top destination for FDI flows and is now ranked third by project
numbers among countries in the Middle East and Africa in the 2016 FDI Intelligence Report
published by the Financial Times. FDI into Kenya by project numbers increased by
47 percent, reaching 84 announced projects, compared with increases in Ghana
(21 percent), Nigeria (19 percent), Egypt (14 percent) and South Africa (3 percent). Likewise
Kenya ranks high as a home country for FDI. In particular, FDI out of Kenya by capital
investment reached US$1 billion in 2015 placing it tenth in the Middle East and Africa region
compared with U.A.E. (US$21.8 billion), South Africa (US$2.5 billion), Mauritius
(US$2.1 billion), and Egypt (US$1.7 billion).
Key trends on foreign inflows in 2015, reported in the Economic Survey, include:
• FDI into Kenya increased by 8.4 percent to US$1.5 billion in 2015
• Portfolio investments declined from US$3.4 billion to US$34 million in 2015 on the
backdrop of the sovereign bond issuance in 2014
• Other investment flows more than doubled from US$2.2 billion to US$4.6 billion in
Analysis by sector indicates that the top five recipient sectors of FDI inflows include:
wholesale and retail trade, financial and insurance, manufacturing, construction, and
electricity and gas supply.
Allow me now to touch on three global developments that are likely to have implications for
foreign investment flows to our country.
First, the subdued global economic growth that has been worsened by the
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prolonged period of uncertainty relating to the slowdown and rebalancing of the
Chinese economy, lower commodity prices, and geopolitical developments and
concerns surrounding "Brexit". Consequently, global growth is now projected at a
worrisome 3.1 percent in 2016.The fact that central banks in advanced economies
are maintaining an accommodative stance is a clear indication that the global
economy has not yet recovered to sustainable levels. In addition, most of the
emerging economies have faced volatile capital flows and exchange rates
attributable to the accommodative policies, and the prospects of unwinding the
unconventional monetary policies.
• Second, the ongoing divestiture of major international companies around Africa, as
reflected in a number of multinational enterprises downsizing their assets through
outright sale and transfer to domestic companies, otherwise referred to as
derisking. The main problem we observe with this process is the ambiguity and poor
information flow on the measures by these enterprises to facilitate proper
supervision and regulation, especially in the financial sector.
• Third, the implication of "Brexit" on trade and investment. Whereas the first round
effects have had minimal impact on our financial market, we expect longer-term
implications on economic growth and development, given that Kenya has significant
trade links with Europe, as our main foreign exchange earners notably tea,
horticulture and tourism exports, are to the EU region. In addition, there are several
European companies that have invested in Kenya. Available data shows that the
stock of inward foreign direct investment from Europe to Kenya stands at 45 percent
of total FDI. The UK alone accounts for 23 percent. A reduction though unlikely in
the short term in both trade and investment from Europe may have negative
implications on the Kenyan economy.
In light of these concerns, regulators, particularly of the financial sector around the world
have embarked on regulatory reform programs to minimize the envisaged spill-over effects of
these crises on financial and real sector of the economy. Policy measures being undertaken
by the Central Bank of Kenya and the other financial sector regulators are intended to build
confidence in investors and the general public. The intended outcome of the policy measures
is to improve the domestic macroeconomic environment; in particular, overall price and
financial sector stability, narrowing the current account balance as well as maintaining
adequate reserve buffers.
Finally, the survey embodies inputs from many teams - designing the survey, respondents
and analysts. I want to pay tribute to these unsung heroes, without who we would have no
hope for quality data.
With these remarks, Ladies and Gentlemen, let me once again welcome you to this breakfast
launch event.
Thank you.