Wednesday, March 7, 2018

Why East Africa is on global investors’ radar

President John Magufuli and his Kenyan

President John Magufuli and his Kenyan counterpart Uhuru Kenyatta cut the ribbon to open for traffic the Nairobi’s southern bypass when the former visited Kenya in November 2016. The ports of Mombasa and Dar es Salaam enable investors make maritime connections to the rest of the world. PHOTO | FILE 

By Paul Kibuuka paul.kibuuka@isidoralaw.co.tz

AS the economies of Algeria, Angola, Egypt and South Africa decelerate amid the enormous opportunities that China’s Maritime Silk Road initiative holds for the East African Community (EAC) regional bloc, multinational companies and global investors are increasingly adding the EAC to their business development strategy.

Notable recent multinationals that have established or acquired operations in the bloc include AB InBev and Volvo Group. While the former acquired SABMiller’s operations in Tanzania, Kenya, Uganda and South Sudan, the latter announced plans to establish a $24.2 million truck assembly plant in Mombasa, Kenya. Volkswagen similarly announced plans to set up a $20 million vehicle assembly plant in Rwanda, and the Hyundai Group is said to be in talks with Uganda’s Kiira Motors Corporation for a new auto assembly plant.

Other multinationals that have expanded their footprint to the EAC include, but are not limited to, Citigroup, Diageo, IBM, General Electric, Google, Heineken, Huawei, L’Oreal, Nokia Networks, P & G, Pfizer, Samsung, Unilever and Yara International. In addition, Africa’s home-grown multinationals, such as, BOA, Ecobank, Equity, GTBank, KCB and UBA have aggressively deepened their operations in the regional bloc.

During 2017 the EAC was also home to one of the five initial public offering (IPO) deals in Africa – the Vodacom IPO which drew $213 million following a change in Tanzanian law which allowed, for good reasons, foreign investors to access Tanzania’s telecoms sector. The Vodacom deal heralds an exciting future in the EAC with regards to possible future IPOs.

Moreover, as President Uhuru Kenyatta and Opposition leader Raila Odinga embrace peace and dialogue to heal post-election rifts, the forecast is that IPO activity in the bloc will increase. It is no doubt that peace and stability in Kenya can have a profound impact on the EAC’s level of growth.

An emerging hotspot

With a population of over 150 million people, a land area of 1.82 million square kilometres and a combined gross domestic product (GDP) of $74.5 billion, the EAC is raising the prominence of the East African subregion and is quickly becoming a dominant force in Africa and a driver of Africa’s growth.

UNCTAD’s World Investment Report 2017 shows that the East African subregion receives more foreign direct investment (FDI) inflows than the rest of Africa. The report notes that in 2016 inflows into East Africa increased by 13 percent, while they decreased by 18 percent in South Africa.

According to a June 2017 report by global consulting firm McKinsey & Company, Tanzania’s and Kenya’s partnerships with Chinese investors are among the most advanced trade and economic relations. The report, ‘Dance of the Lions and Dragons: How are Africa and China engaging, and how will the partnership evolve?’, echoes the Brookings Institution’s earlier finding that private Chinese investment deals tend to be more concentrated in the EAC bloc.

The bloc’s increasing influence brings prime investment opportunities for global investors, despite some security risks but in respect of which the US government supports the efforts of EAC countries to counter terrorism. Like in any other regional economic bloc, in the EAC also peace and security has been and continues to be crucial in attracting multinational companies and other global investors.

The ports of Dar es Salaam, in Tanzania, and Mombasa, in Kenya, are located on the East African coastline and by all means this allows investors to make maritime connections between Africa and the Middle East and Asia. The two ports facilitate trade and investment by connecting to their respective hinterlands and looping into landlocked east and central African countries, such as the vast Democratic Republic of the Congo, through a connected network of roads and railways.

Specifically, the East African Railway Master Plan is expected to enhance connectivity and promote exports by cutting the cost of transportation. The Plan started taking shape in May last year when Kenyan President Uhuru Kenyatta launched commercial operations of the 470-km Mombasa-Nairobi standard gauge railway (SGR) line.

President Kenyatta’s counterparts President John Magufuli of Tanzania, Yoweri Museveni (Uganda), Salva Kiir (South Sudan) and Paul Kagame (Rwanda) have laid foundation stones for the construction of their SGR lines, all of which are part of the Master Plan.

The leaders’ vision to speed up industrialization and boost economic growth by providing a fast, efficient and reliable mode of transport for heavy goods within and beyond the EAC is one of the reasons why global investors are eyeing up the bloc.

Towards deeper integration

The competitiveness of a regional economic grouping matters to investors. If we pause to think of competitiveness as the level of productivity, then the more competitive the EAC is, the more it offers greater returns on investments.

From this viewpoint, ongoing efforts by EAC partner states to fully implement the Customs Union and the Common Market as a step towards the East African Monetary Union will foster closer interaction and collaboration among the states and increase the bloc’s competitiveness despite the sporadic Tanzania-Kenya trade tiffs.

Fortunately, these tiffs are now being addressed at ministerial level following a joint directive issued in this regard by President Magufuli and President Kenyatta on the sidelines of the 19th Ordinary Summit of the EAC Heads of State held in Kampala, Uganda, last month.

Long-term global investors are lured by the prospects of uniform policies across the EAC and a large and competitive economy that will result when the Customs Union and the Common Market are fully implemented.

With the elimination of some 116 non-tariff barriers (NTBs) over the past years, barriers to trade and investment are tumbling down. Official EAC statistics show that there is an increase in inter- and intra-regional trade and intra-EAC foreign direct investments (FDI) and FDI from outside the bloc.

Infrastructure investment partnerships

A joint communique of the just-ended 19th Ordinary Summit of the EAC Heads of State revealed that $78 billion is needed to fund 200 infrastructure projects in the bloc. But as The East African put it: “Who will foot the bill?”

In the face of tight budgets, heightened competition among developing countries for loans and donors shifting more aid to NGOs, it is anticipated that governments of the EAC countries will seek partnerships with investors as financiers of infrastructure to boost investment in infrastructure.

Through public-private partnerships (PPPs) investors can bring in the capital, knowledge, skills and technology to develop EAC infrastructure. Actually, the African Development Bank is urging African governments to improve regulatory frameworks for PPPs and transparency.

Governments, however, need to tread cautiously and learn from failed PPPs when signing up for new ones. In order to negotiate favourable PPPs, it helps to strengthen the leadership and negotiation skills of officials tasked to champion PPPs, drawing in not only legal expertise, but also accounting, finance, economic, engineering and environmental expertise.

Overall, global investors’ choice of the EAC regional bloc as an investment destination affirms the positive views espoused by monitoring instruments such as the Africa Regional Integration Index which generally consider the EAC to be the most successful regional economic integration attempt in Africa.

Paul Kibuuka is a High Court of Tanzania advocate and the managing partner of Isidora & Company Advocates.


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