Kenya’s foreign direct investment (FDI) assets in Ethiopia have seen a substantial increase, rising by 23% to reach Ksh 74.1 billion from Ksh 60.2 billion, primarily driven by investments in the information and communication sector. This significant growth highlights Kenya’s expanding economic footprint in the region, particularly in Ethiopia’s burgeoning telecom market.
A recent report by the Kenyan National Bureau of Statistics (KNBS) underscores this growth, noting that Kenya’s FDI assets in Ethiopia now constitute 22.5% of its total foreign direct investment assets held abroad. The total FDI assets increased by 22.6% to Ksh 329.2 billion in 2022, up from Ksh 268.4 billion in 2021.
Driving Factors Behind the Surge
The KNBS report attributes the surge in foreign assets in Ethiopia mainly to equity investments in the telecommunication sector. The entry of Safaricom Plc into the Ethiopian mobile communication service market has been a key driver of this growth. Safaricom Ethiopia, launched in October 2022, is a part of a consortium that includes Safaricom Plc, Vodafone Group, Vodacom Group, Sumitomo Corporation, and British International Investment (BII).
Safaricom’s strategic investment in Ethiopia is ambitious, with plans to spend between $1 billion and $1.2 billion over the next five years to expand its services. This substantial investment aims to tap into Ethiopia’s large and relatively untapped mobile communication market, which presents significant growth opportunities.
Broader Context of Kenya’s FDI
Kenya’s investment in Ethiopia is part of a broader trend of increasing FDI assets across various African countries. Tanzania holds the second-largest stock of Kenya’s FDI assets, amounting to Ksh 53 billion in 2022, up from Ksh 49 billion in 2021. The Democratic Republic of Congo (DRC) follows closely with FDI assets amounting to Ksh 52.6 billion, largely driven by investments from Kenyan banks such as KCB Group and Equity Bank. Uganda is also a significant destination for Kenyan FDI, with investments totaling Ksh 49.5 billion.
At the end of 2022, the majority of Kenya’s FDI assets were concentrated in Ethiopia, Tanzania, the DRC, and Uganda. These four countries collectively accounted for 69.7% of the total stock of Kenya’s FDI, indicating a strategic focus on neighboring and regional markets.
Implications for the Future
The increasing investment in Ethiopia’s telecom sector is expected to have far-reaching implications. For Safaricom, expanding into Ethiopia represents a critical step in its growth strategy, potentially offering a substantial new revenue stream. For Ethiopia, the entry of a major player like Safaricom is likely to enhance competition in the telecom sector, improve service delivery, and accelerate the country’s digital transformation.
Moreover, Kenya’s growing FDI assets reflect its broader economic strategy of regional integration and cooperation. By investing heavily in neighboring countries, Kenya is not only seeking to expand its economic influence but also to foster regional stability and growth.
Conclusion
Kenya’s FDI assets in Ethiopia have reached an impressive Ksh 74.1 billion, driven largely by significant investments in the telecommunications sector through Safaricom Plc. This growth is part of a broader trend of increasing Kenyan investments in the region, with substantial assets also in Tanzania, the DRC, and Uganda. These investments underscore Kenya’s strategic economic expansion and its role as a key player in East Africa’s economic landscape. As Safaricom continues to expand its operations in Ethiopia, the economic ties between the two countries are expected to strengthen further, paving the way for more robust regional economic integration.
