The report released by the Institute of Chartered Accountants in England and Wales (ICAEW) received in Nairobi attributes surge in FDI in the region to efforts for closer regional integration in the East African Community (EAC), which has involved harmonizing investment regulations across the region and reducing red tape.
“However, while FDI remains low in absolute terms, its share has been growing in recent decades and especially sharply towards the end of the last decade,” ICAEW said in its third quarter report received on Friday.
The East African region’s inflow stands at 6.8 billion U.S. dollars while its share grew at a rate of 11 percent between 2013 and 2014.
The report says that Kenya remains the star performer in East Africa with GDP growth close to 6.5 percent in the next three years, helped by domestic demand and the emergence of a middle class.
Regardless of the region’s general score, Nairobi however still leads the list as Africa’s most attractive destination for FDI, says the report.
According to the study, this is predominantly motivated by the fast-growing middle class that is setting the stage for a booming consumer market.
“In addition to a growing entertainment and media industry, Kenya is also emerging as a global leader in the financial services sector thanks to mobile money systems such as M-Pesa,” said Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia.
The report also notes that the growth is forecast to decelerate slightly but remain robust and close to 7.0 percent. The economy is also expected to be strong in Ethiopia thanks to the return to investment in infrastructure.
More favourable global food price trends are also expected to benefit Ethiopia as it is a major agricultural goods exporter.
“From 10.3 percent, East Africa’s share of the total in developing Africa has now risen to over a quarter. This is partly thanks to the liberalization of regulations which has been undertaken to encourage FDI,” the report finds.
According to ICAEW, while a country’s economic outlook matters for attracting FDI, as it determines the expected financial returns, the legal framework for international investments is often equally important for ensuring that investments go ahead.
“In this regard, East Africa has been particularly aided by political leaders’ efforts for closer regional integration in the EAC, which has involved harmonizing investment regulations across the region and reducing red tape,” ICAEW said. Enditem