EAST AFRICA | INVESTMENT
Why Kenya is a
great choice
for investors
Dr. Moses Ikiara, managing director of KenInvest – the Kenya
Investment Authority, looks at why global investors are increasingly
interested in doing business in Kenya
During recent years sub-Saharan Africa
has been the recipient of billions of dollars
of FDI from around the world, with capital
flowing in from sovereign investors, private
companies and multinationals. However in
the wake of the Chinese stock market
crash and the slump in oil and commodity
prices, the African ‘boom’ needs to be
reassessed.
being eliminated. The EAC has a population
of about 150 million people and one of the
fastest growing economies in the world. Its
founding members were Kenya, Uganda and
Tanzania and those have now been joined by
Rwanda and Burundi. Collectively, these
nations have been pushing for regional
economic co-operation and institutional
reforms that aid cross-border trade.
African countries that have been reliant on
extractives are now facing tough choices
and with global stock markets moving
through a period of great uncertainty,
investors are looking for alternatives that
provide greater stability.
Kenya is also a member of COMESA
(Common Market for Eastern and Southern
Africa), which has a combined population of
450 million people. One of the most recent
developments in the region, which also
boosts Kenya’s attractiveness as a hub for
investment, is the recently signed Tripartite
Free Trade Area (TFTA) agreement between
COMESA, the EAC and the Southern African
Development Community (SADC). These
bodies will do an enormous amount to
promote regional cross-border trade, provide
a significant boost to domestic businesses
and reduce import and export costs. As the
biggest economy within the region
(accounting for 40% of the region’s GDP),
Kenya benefits from strong exports and
inflows of capital and with one of the
more diverse of Africa’s economies, Kenya
is likely to do extremely well as a TFTA
member state.
For institutional and private investors who
may have been looking west towards the
riches of Nigeria and Angola over recent
years, it may be time to turn towards what is
arguably the continent’s most mature market.
Kenya is one of the most advanced and
stable economies in the region, which is why
some of America’s biggest companies have
chosen Nairobi for their African
headquarters. Coca-Cola, Google and General
Electric are all headquartered in Kenya.
Whilst neighbouring giants such as Angola
and Nigeria struggle to mitigate the damage
caused by oil prices, Kenya is enjoying a
period of sustained investment – Google
has recently announced that it will be
investing $700 million in to a Kenyan wind
power project and the Wrigley Company is
soon to start constructing a new $63 million
plant there.
Collective strength
One of Kenya’s strengths lies in its role as
the biggest economy within the East African
Community (EAC), a customs territory where
non-tariff barriers (NTBs) are systematically
Fast growth
Kenya’s economic performance places it as
the third fastest growing economy in the
world according to a Bloomberg Business
survey of leading economists. Growth is
predicted to be 6.5 percent by the IMF and
approximately seven percent by the
Government of Kenya. This growth is being
fuelled not by commodities (as is the case in
neighbouring countries) but by a growing
domestic market and high levels of FDI.
One of the reasons why the domestic market
is flourishing is the success of the country’s
entrepreneurs – in February 2015, Forbes
Africa named eight Kenyan entrepreneurs in
its top 30 for the entire continent.
Investors and businesses looking to invest in
Africa can look at Kenya as a place that has
a strong, dynamic and stable domestic
economy. Investment opportunities are
abound in sectors such as horticulture (one
of the country’s largest exports), technology,
tourism, agriculture, fisheries, industrial
manufacturing and financial services.
Growth in these sectors forms an important
part of the Government of Kenya’s Vision
2030; a development blueprint to,
‘…transform Kenya into a newly
industrialising middle income country
providing a high quality life to all its citizens
by the year 2030.’
Strong returns will also be aided by Kenya’s
well-regulated markets and economic
fundamentals. The Nairobi Stock Exchange
(NSE) is one of the oldest on the continent. It
was established in 1954 and is governed by
the Capital Markets Authority (CMA), which
ensures that the exchange operates within a
transparent framework of rules and
regulations.
The CMA is also charged with licensing,
regulating and supervising Kenya’s capital
markets.
All of these factors – combined with Kenya’s
fortuitous location on the east coast of
Africa, making it an obvious bridge to
Europe and the Middle East – position
Kenya as an oasis of maturity and stability in
a period of great global economic
uncertainty.
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EAST AFRICA | OVERVIEW
Continued from Page 73
Instability in South Sudan is threatening to
destabilise the economy of neighbour and
export partner Uganda.
Uganda
Uganda has substantial natural resources,
including copper, gold and recently
discovered oil. Infrastructure projects in the
transport and energy sectors have increased
domestic demand and stimulated growth.
Uganda was among the first Sub-Saharan
African countries to embark on liberalisation
and pro-market policies in the late 1980s.
Real GDP growth averaged 7% per year in
the 1990s and the 2000s, but from 2006 and
onwards, the country witnessed more
economic volatility and GDP growth slowed
to an average of around 5%.
A rebasing of national accounts to FY2009/10
and the 2014 population census suggests
that the Ugandan economy is about 20%
larger than had previously been calculated,
while the population is 3% smaller.
A huge public investment program is
expected to drive growth while private
investments remain subdued. The economy
is forecast to grow at a rate of approximately
5.6% this year and could maintain an
upward trajectory into the near future, as oil
investments and the large infrastructure
program boost construction activities.
Development in Uganda has continuously
been skewed towards the central and
western regions while the rest of the country
lags behind. Poverty levels are lowest in the
central region, estimated at 5%, compared
to 9% in the western, 25% in the eastern and
44% in the northern regions. Regional
economic disparities arise mostly from
unevenly distributed infrastructure such as
road networks, good access to markets,
health and educational facilities and private
sector investments.
A key development intervention by the
government to address regional disparities
has been the 2007 Peace, Recovery and
Development Plan. Although the regions
still lag behind, implementation of this plan
has produced some positive strides,
especially in infrastructure development.
Corruption remains a problem. Uganda has
laws and institutions to combat corruption,
but enforcement is weak. In 2013,
government harassment of anti-corruption
activists increased and the Constitutional
Court suspended the Anti-Corruption Court.
Foreign aid has been frozen in recent years
due to corruption allegations.
Land disputes in northern Uganda escalated
in 2014, often due to the absence of title
deeds in areas where customary tenure is
still common.
76
Ethiopia
One of the world’s oldest civilizations,
Ethiopia is also one of the world’s poorest
countries. The country’s per capita annual
income of US$470 is substantially lower
than the regional average. It is the secondmost populous country in Sub-Saharan
Africa with a population of 94.1 million.
Ethiopia is a leading coffee producer.
Its economy is largely based on agriculture
and it is vulnerable to droughts and
external shocks.
However, for all its problems and troubled
history, Ethiopia’s economy has enjoyed
strong and broad based growth over the
past decade, averaging 10.8% per year
between 2003 and 2013 compared to the
regional average of 5.3%, making it one of
Africa’s top performing economies. The IMF
ranks Ethiopia as among the five fastest
growing economies in the world. During the
12 months to July 2014 all the economy’s
main sectors performed well. Agriculture
(which represents 40.2% of GDP) grew by
5.4%, industry (14% of GDP) expanded by
21.2% and services (46.2% of GDP) rose
by 11.9%.
This economic growth has helped in the
alleviation of poverty in both urban and rural
areas. While 38.7% of Ethiopians lived in
extreme poverty in 2004-2005, five years later
this was down to 29.6%.
The Government of Ethiopia’s current fiveyear development plan, the Growth and
Transformation Plan is geared towards
fostering broad-based, sustainable
development. Its key goals include:
• rapid economic growth, targeted for 11%
per year at worst and, at best, to double
the size of the economy by 2015, with
GDP per capita expected to reach
US$698 this year;
• agricultural production is to double;
• an increased contribution from the
industrial sector, particularly focused on
increased production in sugar, textiles,
leather products and cement;
• foreign exchange reserves are projected
to increase and the Ethiopian birr is to
depreciate by 5% against the dollar each
year;
• the roads network should increase from
49,000 km to 64,500 km;
• power generation capacity will increase
from the current 2,000 MW to 8,000 MW,
and the number of customers from the
current two million to four million;
• construction of 2,395 km of railway line;
East Africa presents great opportunities for
trade and, as world commodity prices pick
up and as political stability develops, these
opportunities will grow exponentially.
A busy district in Kampala, Uganda Photo: Pecold/Shutterstock.com