Ethiopia is now surpassing Tanzania and Uganda as the primary foreign investment target for Kenya due to the expansion of local enterprises in the vast adjacent market.

Kenya’s direct investment in Ethiopia surpassed Tanzania’s and Uganda’s, which were Ksh51.5 billion ($377 million) and Ksh56.3 billion ($412 million), in 2021, reaching Ksh60.2 billion ($440.7 million).

Direct investment overseas, also known as outward direct investment, is when a resident of one economy has substantial control or influence over the management of a company that is based in another economy.

Tanzania was Kenya’s top foreign investment destination at the start of 2015, but the recently released Economic Survey 2023 shows that Addis Abeba has since swung the balance in its favor.

“Tanzania was the leading destination for the country’s investment abroad at the start of 2015 the review period, with investments declining in 2018, but later recovering to reach Ksh51.5 billion in 2021” an extract from the survey reads.

“Kenya’s direct investment in Uganda reached its peak at Ksh56.3 billion in 2019, while investments in Ethiopia reached Ksh60.2 billion in 2021” it added.

A number of Kenyan companies have entered the Ethiopian market, including Safaricom, the largest telecommunications company in the world, which operates as Safaricom Telecommunications Ethiopia Private Limited (STE). Beginning in Dire Dawa in August 2022, Safaricom Ethiopia will gradually expand to 24 additional cities, including Addis Abeba.

Lenders from Kenya, like KCB Bank, have also expressed interest in entering the Ethiopian market. A delegation of KCB Bank top executives visited Addis Abeba in October of last year to meet with the Ethiopian Investment Commission (EIC) officials.

The KCB team visited Ethiopia a month after the country’s Council of Ministers made history by sanctioning the opening of its banking system to foreign investment.