Ethiopia has been the largest host of capital investment from Kenya on Safaricom’s expansion into the market, overtaking Tanzania in second place.
Safaricom is aggressively investing billions of shillings in its startup operations in Ethiopia.
Tanzania and Uganda are usually Kenya’s top foreign investment destinations.
The latest Foreign Investor Survey published by the Kenya National Bureau of Statistics (KNBS) shows that the assets owned by Kenyan entities in Ethiopia increased from Sh647.2 million in 2020 to Sh60.1 billion in 2021 before increasing by over Sh74.1 billion. 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 to obtain operator licenses in Ethiopia, followed by a series of start- up investments to roll out operations in countries that have traditionally closed borders to foreign companies.
“The increase in foreign assets in Ethiopia is mainly due to equity investment in the telecommunications sector,” said the survey jointly conducted by the Central Bank of Kenya (CBK) and the Kenya Investment Corporation (KenInvest).
Safaricom paid $473 million (Sh60.6 billion at current exchange rates) out of a total of $850 million (Sh108.9 billion) needed in 2021 to secure an operator license to launch telecommunications services in Ethiopia. The rest is paid by other consortium members who own Ethiopian subsidiaries.
This immediately raised Kenya’s foreign assets in the country, ahead of Uganda, Tanzania, the United States and Mauritius, among others, which previously exceeded a large margin.
In addition to the telecom license, Safaricom is investing an additional Sh10.5 billion in the year ending March 2022 to start operations, including hiring staff.
The Ethiopian subsidiary is still not breaking even and Safaricom, the largest shareholder, is still investing more to support its operations with the aim of turning a profit from 2026.
Ethiopia has traditionally been a protectionist economy, with very limited foreign investor participation in the economy. Until 2021, most sectors are not open to foreign participants, so the inflow of foreign direct investment is very low.
Safaricom’s investment helped raise Kenya’s total foreign assets to Sh514.9 billion in 2022 from Sh452.8 billion a year earlier.
Kenya’s foreign liability stock increased to Sh2.06 trillion from Sh1.98 trillion, strengthening the country’s debt position.
Debtor countries have fewer assets abroad compared to the value of domestic assets owned by foreigners, including loans to businesses and stock market investments.
Countries in a position of indebtedness face a number of challenges, including the burden of paying debts denominated in foreign currencies.
Besides Ethiopia, the Democratic Republic of Congo (DRC) has also become a major destination for Kenyan investment after joining the East African Community (EAC) in 2022, which removes many trade barriers between Kinshasa and Nairobi.
By 2022, Kenyan assets held in the DRC will increase by 196 per cent to Sh52.8 billion from Sh17.8 billion in 2021, making it the fourth largest destination for Kenyan investment.
It follows the United States, Rwanda and Mauritius.
According to the survey, the rise in Kenyan investment in the DRC was largely “due to investment in the banking sector,” occasioned by Kenyan banks’ race to enter the Congolese market after the EAC was recognized.
Since 2022, KCB Group and Equity Group have invested heavily in the DRC, each acquiring a bank in the country to strengthen their presence.
KCB completed the acquisition of 85 per cent 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 were merged into an entity that now operates as Equity BCDC.
Kenyan assets in Tanzania -previously a top investment destination- have also increased 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 third. Outside of Africa, the United States is the most popular, hosting Sh29.2 billion or 5.7 percent of Kenya’s foreign assets in 2022.
This marks a huge drop in assets compared to 2021 when the US held 41.4 billion or 9.2 percent of Kenyan assets.