Several weeks ago, a foreign investor was asked to pay Sh800 million for a quarter acre piece of land in Upper Hill, Nairobi. The investor wanted to set up a modern office block with a mall, but he bolted out.
Telecommunications firm Airtel recently spent about six months searching for land to set up its headquarters in Nairobi, underscoring the difficulties foreign investors wanting to set up base in Nairobi go through.
“The situation is grave because most of those owning land hold it for speculative purposes, and charge prices that are way above the market rates when approached by an investor,” said KenInvest general manager Kennedy Manyala. KenInvest is an investments promotion company.
The Vision 2030 board, the group leading the drive to a medium income level status for Kenya in 19 years, wants the government to establish a land bank, where investors can easily access land at reasonable prices.
This was one of its recommendations in its last review on the progress of Vision 2030 projects.
“Lack of a land bank and the current high prices are great hindrances to investors,” said Vision 2030 chairman James Mwangi.
Economic experts say Kenya has among the highest land prices in the region. This is more pronounced in major towns, owing to supporting infrastructure like roads, water and electricity.
In Nairobi, land prices are inflated as soon as the owners learn that the prospective buyer is foreign, presumably because they are thought to have huge sums of money to invest.
“There is a perception that companies coming to set up bases in the country have huge sums to spend. This is not always true, especially in regard to start-ups that want to build links with multinationals,” said a KenInvest official.
Flush funds assumed to be proceeds from piracy off the Somalia coastline have in recent years been cited as contributing to distortion of property prices, especially land prices, in Nairobi.
In some cases, land for investment is not available, and this is worrying the government agencies tasked with facilitating investment.
Kenya has been losing out to its neighbours, mostly Uganda and Tanzania, in attracting Foreign Direct Investments, mostly due to the high cost of setting up new enterprises.
The issue is more urgent after East Afican states entered a Common Market protocol in 2009, which means firms can set up base anywhere in the region and access the bloc’s market.
“Looked at against our neighbours, ours is a much more expensive destination. There is a need for policy intervention to ensure that when investors express interest in a project, land does not become a deterrent,” said land expert Ibrahim Mwathane.
He said county governments should prioritise setting up of land banks to attract investors.
This, according to other experts, could make the difference for counties in the envisaged battle for investors.
Land set aside by the government in the past for such purposes was grabbed by influential people in the 80s and 90s during the Kanu regime.
High land rates have also contributed to the searing costs of setting up affordable housing schemes in Nairobi. Experts warn that if the matter is not addressed soon, housing city residents will be a mirage.
“The government has several policy options that can make land available and affordable for development. These include buying, compulsory acquisition and ring-fencing the remaining government land for investment,” said Mr Mwathane.
A report by the United Nations Conference on Trade and Development shows Kenya’s Foreign Direct Investment dropped from $729 million in 2007 to $141 million last year.
Uganda’s, on the other hand, improved from $733 million to $799 million, while Tanzania’s remained at $645 million.
Some of the reasons advanced are political, including restrictions on foreign ownership in certain sectors.