Sustainable investment now demands a balanced approach, one that not only meets current financial objectives but also safeguards the future.
The amount of money invested in various sectors of the economy as an aggregate of the country’s Gross Domestic Product (GDP) has sunk to a 14-year low, a new report shows, reflecting falling investor confidence in the Kenyan economy and difficult economic times discouraging savings and investments.
Analysis by the Parliamentary Budget Office (PBO), which advises lawmakers, indicates that by the end of 2023, investments as a share of GDP had declined to 18.2 percent-- the lowest level since 2010 when it stood at 18 percent.
The 2023 rate was a 0.7 percentage point drop from the 18.9 per cent investment rate recorded in 2022 and a decline by almost six percentage points from the 2014 peak of 22 per cent reflecting a slower growth in investments compared to economic growth.
According to the experts at the PBO, the downward trajectory was largely occasioned by the fading confidence of investors in the economy, and a shift in economic policies that hindered locals from apportioning larger shares of their income to investing.
“The decline in investment as a share of economic output might reflect underlying factors such as changes in investor confidence, economic policy shifts, or global economic conditions that affect the domestic investment climate,” noted the expert group in its latest analysis of recent economic developments.
“Over the last decade, the slow investment growth in Kenya was occasioned by the decline in demand for Transport Equipment, Other Machinery and Equipment and ICT equipment.”
The decline is projected to take a toll on the country’s economic progress, as investments are considered a key driver of economic growth since it improves the productivity of economic inputs like machinery and human capital.
With the plummeting investments, growth in business capital stock – physical assets used in production like buildings and machines – has also stalled, halving from 19.7 percent in 2016 to 9.1 percent by the end of 2023.
This means that there is limited improvement in the speed and quality of production in the country, slowing down economic progress and denying Kenyans increased earnings from their work.
“A lower investment rate typically means less capital being directed towards enhancing productive capacities, which might lead to slower economic growth over time,” noted the PBO.
“Reduced investment can impact the improvement and maintenance of infrastructure, potentially hindering long-term development projects and economic opportunities.”
At the same time, private consumption has posted a marginal decline, meaning that Kenyans are spending less of their income, an indication of income stagnation and cautious spending amidst economic uncertainty.
