Several market reforms and Kenya's push to privatise dozens of State-Owned Enterprises (SOEs) have significantly enhanced the country's appeal to global investors, making Nairobi East Africa's most preferred destination for capital, a new survey by advisory multinational Deloitte Africa shows.

East Africa's largest economy is the most preferred investment destination at 28 percent compared with Tanzania and Uganda both tied at 22 percent, Rwanda (18 percent) and Ethiopia at a distant 9 percent.

"Kenya boasts a stable macroeconomic environment, corralled currency depreciation, and innovative industries which are an attractive avenue for investors," the Deloitte Africa Private Equity Confidence Survey 2024 notes in part.

A number of changes in the investment landscape in Kenya have caught the eye of potential investors. Top among them is the government's move to privatise a total of 26 state-owned enterprises. 

Creating private-led economy

"Despite the onerous bureaucratic process, legal hurdles, and divergent public sentiment, this signals a strategic intent aimed at creating a more dynamic and private-led economy," the report said.

Authorities in Kenya have started a plan to privatise a number of parastatals cutting across industries including, energy, manufacturing, financial services, and hospitality. This scenario, Deloitte Africa noted, offered a range of opportunities for investments drawn from "diverse PE sources."

"Public entities poised for privatisation, particularly those in the manufacturing sector, offer sizable investment potential. The manufacturing sector in Kenya is a key resource for the current government to achieve economic diversification and job creation goals.

"PE firms can leverage their expertise to modernise operations, improve efficiency, and expand market reach, positioning these entities for robust growth and profitability."

Early this year, the Cabinet approved the privatisation of seven government owned entities, including Development Bank of Kenya, bringing to 17 the total number of entities earmarked for privatisation.

“The decision (on Development Bank) by our nation’s apex policy-making organ was informed by the fact the Bank had fully transitioned into a fully-fledged depositing taking commercial bank regulated by the Central Bank of Kenya (CBK),” a cabinet note said in part.

Other SOEs that have been singled out for privatisation are Golf Hotel Ltd, Sunset Hotel Ltd, Mt Elgon Lodge Ltd and Kabarnet Hotel Ltd. Additionally, hospitality establishments under the Kenya Safari Lodges and Hotels Ltd, including Mombasa Beach Hotel, Ngulia Safari Lodge, and Voi Safari Lodge, will also be sold to private entities.

Read also: Authority kickstarts sale of State-owned hotels

Parastatals set for sale

Earlier, President William Ruto's administration announced plans to privatise the Kenya Literature Bureau (KLB), Kenyatta International Convention Centre (KICC), Kenya Seed Company Ltd, Kenya Pipeline Company (KPC), New Kenya Co-operative Creameries, the National Oil Company of Kenya (NOCK), Numerical Machining Complex, Kenya Vehicle Manufacturers Limited, and Rivatex East Africa Limited. This move was however slowed down following the filing of a case in the High Court by opposition party ODM blocking the sale.

According to Deloitte Africa, Kenya's appeal to investors is also positively influenced by ongoing reforms in the capital markets. Key among these reforms is the recent rollout of the Capital Markets (Public offers, Listings, and Disclosures) Regulations, 2023. 

This law aims at deepening capital markets, addressing emerging issues and market dynamics, while also making Initial Public Offers (IPOS) s a viable exit route for investors.  

While Kenya's star has been shining, it has been a different showing for Ethiopia, Africa's second most populous market. "Ethiopia has been grappling with debt pressure following its Eurobond default in December 2023, foreign exchange shortages, and the spectre of currency devaluation. All these challenges have watered down investor confidence in Ethiopia."

The survey notes that while Kenya's neighbour to the North, Ethiopia, has slipped from the fourth most preferred investment destination according to a similar survey in 2023, Rwanda is now the fourth biggest focus for venture capitalists scouting for opportunities in the East African region.

Tanzania's attractiveness

At the same time, the Deloitte survey shows that Tanzania's attractiveness has improved to 22 percent this year, up from 18 percent in 2023, attributable to the rollout of the Tanzania Investment Regulations Act of 2023, a law that aims at creating an investor-friendly environment.

Respondents in East Africa expect Europe and the US to be the biggest sources of capital over the next 12 months, with the Middle East and Asia also playing crucial roles. However, despite this optimism, deal sizes are expected to remain modest with data showing that 54 percent of those polled anticipate deal sizes to be below $25 million (Kes3.2 billion), with an additional 35 percent expecting deals between $25 million and $50 million (Kes6.4 billion).

Only 12 percent of respondents foresee larger deals in the range of $50 million to $100 million, a reduction from previous years. Furthermore,  more businesses are concerned that firms will be looking to exit the market.

An estimated 52 percent of respondents in East Africa expect an increase in exit activities over the next 12 months while 37 percent of respondents believe exit levels will remain unchanged. The expected rise in exits is linked to the steady economic recovery post-pandemic.

Other preferred investment destinations

Across the continent, at 34 percent, Tunisia remains the most preferred investment destination in North Africa with Morocco (30 percent), Egypt (21 percent), Algeria (9 percent) and Libya (6 percent) closing the list of the top five economies.

Post the formation of a Government of National Unity in South Africa, investors are looking at Africa's most advanced economy favourably. According to Deloitte, South Africa remains the top destination for capital in the region at 28 percent followed by Mozambique at a distant 15 percent. 

"Mozambique comes in as the second most important country funds look to focus on, after a new Private Investment Law was passed in 2023 to attract investments into the country," notes Deloitte Africa.

In the West African area,  the survey shows respondents consider Nigeria (22 percent) and Ghana (21 percent) the top two countries on which their funds aim to focus. "This contrasts with last year where Côte d’Ivoire was seen as the top market, and Nigeria and Senegal shared second place."

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