Over the years, Kenya has emerged as a promising destination for private financing attracting significant funds from both domestic and international sources. The influx of private financing plays a critical role, and comes at a time when economy is slowing down following the effects of geopolitical tensions.
According to data from the European Investment Bank (EIB), Kenya witnessed a remarkable increase in private capital investment in the past year. The lender says that in 2022, the country recorded a staggering Sh168.5billion ($1.1 billion) in private capital investment, marking a significant rise from the Sh34.61 billion ($226 million) recorded in 2021.
The surge in private financing positions Kenya as the second-highest recipient of private capital investment in Africa, after South Africa. It is interesting that many investors are embracing private financing thanks to the fact that it is key in the expansion and modernization of key sectors, such as financial services, industries, and information technology.
In fact, the Finance in Africa report published by EIB highlights that four major markets; Kenya, South Africa, Egypt, and Nigeria, accounted for nearly two-thirds of all private capital investments across the continent in 2022. These markets have become attractive investment destinations, luring capital from various sectors of the economy. In Kenya, the financial services sector attracted the largest share of private capital investment, accounting for almost 40% of the overall investments made in 2022.
This was followed by investments in the industrials, consumer products, information technology (IT), renewable energy, healthcare, conventional energy, and telecommunications sectors. Notably, the information technology sector has witnessed a significant increase in private capital investment, capturing over 10% of the total investments in 2022, compared to less than three percent before the pandemic.
In 2023, private financing to Kenya accelerated. One good example is the recently approved African Development Bank Group Sh16.86 billion ($110.41 million) credit to Kenya to implement the third phase of the Last Mile Connectivity Project which will also see a further Sh2.01 billion ($13.17 million) loan from the Canada-African Development Bank Climate Fund (CACF).
The growth in private capital investment in Kenya is not an isolated phenomenon, but part of a wider trend in Africa. Ecofin Pro Transaction Journal, which tracks private financing flows across the continent, expects private financing involving African entities to exceed the 2022 record of Sh3.03 trillion ($19.8 billion). As of November 10, 2023, private financing flows had already reached Sh2.94 trillion ($19.2 billion), setting a new record since the journal began collecting data in 2017, as per the journal, which also shows a trend of increasing number of annual transactions in Africa.
As of November 10, 2023, the number of transactions reached 940, surpassing the figures recorded from 2020 to 2022, although slightly lower than the record of 1,071 transactions in 2019. Data from the journal also reveals that the median value of transactions has exceeded Sh459.75 million ($3 million) in 2023, a level not seen since 2017 when the average value of private financing flows was Sh536.38 million ($3.5 million).
Furthermore, last year (2023) witnessed transactions surpassing the median value – there were 470 transactions exceeding the Sh459.75 million ($3 million) mark, compared to 360 such transactions in 2017. And, despite a slight moderation in the growth of private financing flows, the number and total value of transactions exceeding Sh15.33 billion ($100 million) remain substantial.
While 2023 had 38 deals worth more than Sh15.33 billion ($100 million), fewer than the 48 recorded in 2022, it is still accurate to say investors are willing to make significant commitments to promising projects and ventures not only in Kenya, but across the continent.
As private capital investment in Africa continues to grow, we still have a long way to – rising interest rates in developed markets, the effects of the Ukrainian crisis on food prices, and subsequent interest rate policies adopted by African central banks have played a role in moderating the growth of transactions on the continent. These factors, combined with the post-COVID-19 recovery phase, have shaped the investment landscape in Africa.
Kenya’s remarkable increase in private capital investment, coupled with the broader trend across Africa, signifies a positive outlook for the continent’s economic future. The trend is expected to fuel job creation, infrastructure development, and technological advancements, propelling countries such as Kenya towards their development goals. For a country like Kenya to thrive on private financing, it must work towards keeping businesses afloat while creating employment opportunities especially to the young people.
As the private capital investment landscape continues to evolve, it is essential for African nations too to create an enabling environment for investment. Only by doing so, can Africa further unlock its economic potential, attract more private capital, and foster sustainable development for the benefit of its people and the region as a whole.
