By Chuene Setati, Head (East and West Africa): Trade and Working Capital Sales, Absa CIB
With opportunities for infrastructure development, a wealth of natural resources and a growing consumer market, East Africa is an increasingly attractive investment option. While the resource-rich regions of Southern and West Africa enjoy the lion’s share of sub-Saharan Africa’s foreign direct investment, East Africa has tended to fly under the global trade radar. It’s time that changed.
The diverse and growing population in East Africa presents significant opportunities for businesses looking to tap into the market. Their underdeveloped infrastructure and arable land give the region an attractive suite for all corporates looking to invest on the continent. That under-developed infrastructure is both a challenge and an opportunity. At Absa, we are optimists. We’re looking to add value into Africa, and we do that by identifying the challenges and turning them into opportunities. Having identified the infrastructure challenges, we have chosen to invest in projects that support infrastructure development in the region.
Inadequate transport networks and underdeveloped infrastructure are not the only challenges in East Africa. Most countries in the region still struggle to access affordable financing, especially for small and medium-sized enterprises (SMEs), which can constrain business growth and investment opportunities. The fragmentation of markets due to diverse regulatory frameworks and logistical challenges can also complicate cross-border operations and limit market reach. Hard currency availability – especially US dollars – and local currency volatility can increase investment risks, affecting currency conversion and impacting profitability.
That’s the bad news – and that’s sometimes the only news investors hear about East Africa. But there are abundant opportunities in the region, too. East Africa is rich with untouched natural resources, including minerals, oil, gas, agricultural lands and renewable energy sources. This presents significant investment opportunities in sectors such as mining, energy, agriculture and infrastructure development.
East Africa also represents a large and rapidly expanding consumer market. Rising middle-class populations, urbanisation and increased purchasing power offer immense potential for consumer goods, retail and services sectors. And the demand for improved infrastructure in East Africa is high. This creates substantial investment opportunities in sectors like transportation (roads, railway, airports), energy infrastructure (power plants, transmission lines) and urban development.
There are many misconceptions about East Africa. One of those is that ‘East Africa’ and ‘Kenya’ are the same thing. Kenya may be the biggest player in the region, but it’s by no means the only player. Five years ago if Kenya coughed, the entire East Africa caught a cold, but that changed about three years ago when Kenya started experiencing those hard currency liquidity challenges.
Meanwhile, Tanzania and Uganda have been consistent in their growth ambitions in the past few years. Rural electrification, standard railway gauge and hydropower stations are among a few key projects being prioritised by both countries. Their currencies have been fairly stable, even though the availability of dollars in the market remains a challenge in Tanzania.
Uganda, on the contrary, has not had any dollar liquidity challenges and has managed to supply the market with excess dollars averaging at three months import cover and about $3.5 billion in exchange reserves. Another advantage in Uganda is the relative ease of doing business. Many of the local industries are not regulated – including coffee and the fuel industry, for example. That makes it a lot easier for businesses to invest in the country.
East Africa is also benefiting from the implementation of the African Continental Free Trade Area (AfCFTA). Although it is not aggressively measured, we have seen an increase in intra-African regional trade between countries in East and Southern Africa. COVID-19 introduced supply chain challenges, and a few countries had to be creative in sourcing raw material regionally. Kenya has also removed visa requirements from several countries, which is increasing mobility and resulting in increased business.
That ease of movement between East Africa and its regional neighbours is adding to the sense of bullishness and optimism in the region. Business is a function of mobility. For me to know that I can make money in Tanzania, for example, I would have to meet someone from Tanzania, start engaging and start talking business. One of the first things that came up in the negotiations around the AfCFTA was the idea of making the mobility of individuals between African countries easier. You cannot increase business if it’s difficult for me to even get into your country.
As a Pan-African bank, Absa has a deep presence in East Africa. Our role as a trusted financial partner is to provide advice and solutions that enable growth for our clients. These solutions cut across transactional banking, foreign exchange (forex, or FX) and beyond, helping our clients navigate currency and dollar liquidity challenges, together with their other business banking needs. Our clients have been able to foster growth through serious headwinds due to Absa’s understanding of local market challenges, and our ability to respond accordingly.
Share it!
