Kenya has fallen behind Tanzania and Rwanda as the top investment destination in East Africa, dampening the country's ambition to become a regional leader in tapping foreign direct investment.

A new report that lists the investment climate across all 54 economies in Africa indicates that East Africa's economic giant is trailing her neighbours in terms of attracting top investments. The study conducted by diversified financial services brand, Rand Merchant Bank, ranks Kenya 11th, having fallen from the top 10 bracket since the previous study released last year.

Leading economy

South Africa has been ranked as the most attractive investment destination, extending its lead and maintaining its position as the leading economic powerhouse in Africa despite Nigeria's rebasing its Gross Domestic Product (GDP) last year and rising to the top position of African economies.

Nigeria, Ghana, Morocco and Tunisia are the other top five economies in Africa respectively with Egypt slipping three slots to the sixth position. The other countries in the top ten positions are Ethiopia, Algeria, Rwanda and Tanzania with Kenya and Libya dropping out of the top 10.

"2014 was a less favourable year for Africa's investment attractiveness ratings," the report released last week reads in part, adding that "Not only did the continent's overall investment attractiveness deteriorate, but 22 countries received lower scores."

The report further states that part of the deterioration seems temporary due to issues like religious extremism, political upheavals or the Ebola crisis, although more reforms are needed if the recent economic boom is to be sustained.

"Kenya is certainly East Africa's gateway for foreign investment. There are plans to transform Nairobi into an international banking and financial hub in the next two decades, but authorities face a plethora of challenges (including an inefficient legal system, graft, and the failure to put into practice a double taxation treaty with Uganda and Tanzania) that hamper access to finance," states the report.

Rwanda and Ethiopia are emerging as strong contenders to unseat Kenya as the economic powerhouse in the Eastern African region.

"Rwanda is a tiny country, but its reform efforts have been so outstanding that it is reaping rapid rates of economic growth and associated improvements in the business environment. Ethiopia's position comes about because of rapid growth and its large population,"adds the report.

Meteoric growth

Rwanda, which leads the East African countries, continues its meteoric growth, which has since seen its ranking as an ideal investment destination rise from 39 in 1999 to the ninth position this year.

The report comes days after Kenya hosted the 6th Global Entrepreneurship Summit (GES) that saw thousands of entrepreneurs from all over the world converge for the meeting that was officially opened by US President Barack Obama and President Uhuru Kenyatta.

Kenya is further set to host the 10th Ministerial Conference of the World Trade Organisation (WTO) in December this year after winning the bid to hold the high-profile summit that will once again see the business world converge at the East African nation for the second time in less than six months.

The General Council last year agreed that the conference be held in Nairobi, Kenya from December 15 to 18, 2015.The Ministerial Conference is the topmost body of the WTO under the governance structure set up by the "Agreement establishing the WTO".