Ethiopia has become the host of the largest stock of capital investment from Kenya in Safaricom’s expansion into that market, knocking Tanzania down to second place.
Safaricom is investing billions of shillings heavily in its startup operations in Ethiopia.
Tanzania and Uganda have traditionally been the top destinations for foreign investment in Kenya.
The latest Foreign Investor Survey released by the Kenya National Bureau of Statistics (KNBS) reveals that assets held by Kenyan entities in Ethiopia rose from a low of Sh647.2 million in 2020 to Sh60.1 billion in 2021 before rising further to Sh74.1 billion in 2022.
Ethiopia’s share of foreign assets in Kenya rose to 14.4% in 2022, compared to 13.3% in 2021 and 0.2% in 2020. This comes after Safaricom, Kenya’s largest telecom operator, invested billions of shillings in acquiring an operator license in Ethiopia, followed by a series of startup investments to expand its operations in the country that has traditionally closed its borders to foreign companies.
“The increase in foreign assets in Ethiopia was mainly due to equity investment in the telecom sector,” said the survey, conducted in collaboration with the Central Bank of Kenya and Kenya Investment Corporation (KenInvest).
Safaricom paid $473 million (60.6 billion shillings at the current exchange rate) of the $850 million (108.9 billion shillings) required in 2021 to secure an operator license to provide telecom services in Ethiopia. The rest was paid by other members of the consortium that owns the Ethiopian subsidiary.
This immediately increased Kenya’s foreign assets in the country, putting it ahead of Uganda, Tanzania, the United States and Mauritius, among others, which it previously outperformed by a large margin.
In addition to the telecoms licence, Safaricom invested an additional Sh10.5 billion in the year to March 2022 to start operations, including hiring staff.
The Ethiopian subsidiary has yet to break even, and Safaricom, its largest shareholder, is still investing more capital to support its operations with the aim of achieving profitability from 2026.
Ethiopia is a traditionally protectionist economy, with very limited foreign investor participation in the economy. Until 2021, most sectors were not open to foreign participants, which resulted in significantly reduced FDI inflows.
Safaricom’s investments helped lift Kenya’s total stock of foreign assets to Sh514.9 billion in 2022 from Sh452.8 billion the previous year.
Meanwhile, Kenya’s foreign liabilities rose to Sh2.06 trillion from Sh1.98 trillion, strengthening the country’s position as a debtor nation.
The debtor country has fewer assets abroad than the value of its domestic assets owned by foreigners, including loans to companies and stock market investments.
Debtor countries face multiple challenges, including the burden of repaying foreign currency-denominated loans.
Besides Ethiopia, the Democratic Republic of Congo has also emerged as a major destination for Kenyan investments after joining the East African Community in 2022, which removed many trade barriers between Kinshasa and Nairobi.
In 2022, Kenyan assets in the DRC jumped 196 percent to Sh52.8 billion, from Sh17.8 billion in 2021, making it the fourth largest destination for Kenyan investments.
This has seen it overtake the United States, Rwanda and Mauritius.
According to the survey, the increase in Kenyan investments in the Democratic Republic of the Congo is largely due to “investments in the banking sector,” as Kenyan banks race to enter the Congolese market after it joined the East African Community.
Since 2022, KCB Group and Equity Group have invested significantly in the DRC, each acquiring a bank in the country to strengthen their presence.
KCB completed the acquisition of an 85 percent stake in Trust Merchant Bank (TMB) in December 2022 at a cost of Sh25.1 billion.
Equity also spent over Sh30 billion to buy controlling stakes in two banks in the Democratic Republic of Congo, which it merged into the entity that now operates as Equity BCDC.
Kenya’s assets in Tanzania – previously the top investment destination – also rose to Sh61 billion in 2022 from Sh52.9 billion the previous year.
Tanzania now ranks 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 Africa, the United States is the most popular, hosting Sh29.2 billion or 5.7 percent of Kenya’s foreign assets in 2022.
This represents a significant drop in assets compared to 2021 when the United States held $41.4 billion or 9.2 percent of Kenya’s assets.
