Kenya’s Foreign Direct Investment (FDI) liabilities fell by nearly $1 billion in 2023 despite an 8.96% increase in shilling terms, according to an analysis by Finance in Africa.
The latest Foreign Investment Survey report—jointly published by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics (KNBS), and the Kenya Investment Authority (KenInvest)—shows FDI stock rose from KSh 1.34 trillion ($11.4 billion) in 2022 to KSh 1.46 trillion ($10.4 billion) in 2023.
Although the rise in local currency suggested growth, the shilling’s sharp depreciation—averaging KSh 139.9 per dollar in 2023 versus KSh 117.9 in 2022—led to an 8.77% ($972.8 million) drop in dollar terms, reversing the 11.9% ($1.3 billion) gain recorded in 2021.
Bloomberg data shows the Kenyan shilling lost 21% against the dollar in 2023, its steepest annual fall since 1993. Rising global interest rates, weaker forex inflows from exports, and foreign portfolio outflows drove the decline. It was also the currency’s fourth straight annual drop.
A freefall in 2023
According to Jared Ariemba, Senior Lecturer and Head of Accounting and Finance at the Technical University of Kenya, the year 2023 and beginning of 2024 were not particularly good for the Kenyan shilling.
“The currency can be said to have experienced a freefall, depreciating from KSh 113 to KSh 160 to the US dollar,” he said in a recent report.
CBK data shows the shilling closed December at KSh 156, compared to about KSh 135 earlier in the year. Ariemba noted that the shilling lost value across major currencies: down 20.6% against the US dollar, 30.3% versus the euro, 29.7% against the pound, and 15.3% versus the yen.
Losses extended even to regional currencies, including the South African rand, Tanzanian shilling, and Ugandan shilling.
The volatility sparked panic in the foreign exchange market, with some players reportedly hoarding dollars. CBK Governor Kamau Thugge acknowledged the currency had been overvalued but expressed optimism about a correction.
Ariemba added that Kenya’s net-importer status, rising debt-servicing costs, and tighter US monetary policy compounded the shilling’s slide. “The CBK was slow in narrowing interest-rate differentials with developed markets, leaving the currency vulnerable to foreign portfolio outflows,” he said.
In December 2023, the apex bank raised its benchmark lending rate by 200 basis points to 12.5%—the sharpest hike since 2011—to stabilise the currency. However, by August 2025, the rate had been cut back to 9.5%, its lowest in two years.
Foreign liabilities rise in shillings, fall in dollars
The total stock of foreign liabilities grew by 3.4% to KSh 2.34 trillion in 2023, but in dollar terms fell 12.8% to $16.7 billion. FDI remained dominant at 62.2% of the total.
Equity and investment fund shares rose by 8.2% in shillings to KSh 1.22 trillion but slid 9% in dollar terms to $8.7 billion. Retained earnings expanded 20.6% to KSh 400.3 billion, though dollar growth was negligible.
Debt instruments and portfolio investment similarly showed gains in shillings but declines when converted to dollars. Other investment liabilities fell by 20.4% in dollar terms to $5.7 billion.
Flows turn negative
The East African country recorded net outflows of KSh 27.5 billion ($197 million) in 2023, compared to net inflows of KSh 43.6 billion ($370 million) a year earlier.
FDI inflows fell 9.2% in shillings to KSh 84.6 billion ($605 million), while other investments swung to heavy outflows of KSh 101.9 billion ($729 million).
Sectoral and regional shifts
FDI remained concentrated in services and industry but shrank in dollar terms. Finance and insurance, the largest sector, rose 9.6% in shillings to KSh 409.7 billion but dropped 8.9% in dollar value to $2.9 billion. Manufacturing, ICT, and wholesale/retail sectors all showed similar patterns.
Europe remained Kenya’s leading source of inflows at 35%, led by the United Kingdom (23.4% of FDI stock) and the Netherlands (17.3%). South Africa and Mauritius led from Africa, while India, China, and the UAE were top Asian investors.
Assets and investor sentiment
Kenya’s foreign assets rose by 36.8% in shillings to KSh 834.2 billion, or 15.3% in dollar terms, with Africa accounting for the bulk of holdings.
Investor perceptions highlighted skilled labour, market access, and ease of doing business as top attractions, though high electricity, financing, and permit costs remained constraints. Employment linked to surveyed enterprises grew by 3.3% to 224,704, with rising local hires and increased female participation.
Shilling rebounds but risks linger
After a steep 2023 plunge, the shilling strengthened in early 2024, appreciating 12% to KSh 143.6/$ by February on the back of a Eurobond issue and an oversubscribed local infrastructure bond. The rally extended into March, with the currency nearing KSh 130/$.
But analysts warn the rebound is not without risks. “A strong Kenyan shilling is not necessarily beneficial,” said Ariemba. “As a net importer, Kenya suffers heavily from exchange-rate volatility, which disrupts contracts and inflates import costs.”
He added that CBK should focus on smoothing volatility rather than fixing the rate. “The shilling should ultimately settle at a fundamental level that reflects both import and export realities,” he said.
Note: All dollar conversions are based on CBK’s average annual rates: KSh 109.6 = $1 in 2021, KSh 117.87 = $1 in 2022, and KSh 139.85 = $1 in 2023.
