East African nations have maintained their attractiveness to foreign investments, taking the shine from Africa’s largest economies such as South Africa and Nigeria, which continue to falter economically.
Bolstered by increasing investments in infrastructure such as roads, rail, energy, ports and airports, the East African nations of Kenya, Tanzania, Uganda and Ethiopia have enjoyed growth rates of at least 5 per cent over the past decade. Findings in oil and gas have added an impetus to their growth prospects.
Analysts have projected a growth forecast of 5.9 per cent in 2018 on average and 6.1 per cent in 2019. The region registered an average growth rate of 5.6 per cent in 2017 (making East Africa the fastest growing sub-region) and 4.9 per cent in 2016.
Kenya, Ethiopia and to some extent, Tanzania, have especially seen an upsurge in investments from consumer goods’ manufacturing firms. This has positioned the manufacturing sector as one of the leading contributors to the region’s average real GDP growth of 39 per cent in 2017, according to the African Development Bank.
In May this year, Bloomberg reported that Nissan Motors plans to establish a vehicle assembly plant in Kenya, boosting the country’s vision of becoming a regional auto-manufacturing hub. In just two years, German car manufacturer, Volkswagen set up a car assembly line for its Polo hatchback in Thika, 50 kilometres outside Nairobi. Peugeot, a French auto-maker also announced a similar plan to set-up a car assembly line in Kenya.
Ethiopia, which recorded the highest growth rate in East Africa of 8.1 per cent in 2017, has been a key hotspot for foreign investments in its industrial sector, especially textile and apparels production. Foreign direct investment in the textile industry alone has risen to US$ 36.8 billion in 2016/17 period from US $166.5 million in 2013/14 period according to the Ethiopian Investment Commission (EIC). In the past decade, investors from countries such as China, India and Turkey have led the pack to invest in the country of 100 million people, with their counterparts in the US and Europe following suit.
The country is now ripe for further investments after the new government announced it would allow private and foreign investors to invest in key sectors of the economy such as transport and logistics, telecoms and airlines.
In recent years, Tanzania has attracted major investments in its mining, oil and gas sectors. Other sectors that have attracted foreign investments include the agricultural sector (coffee, cashew nuts and tobacco) and the infrastructure sector. Significant investment in major infrastructure projects such as the standard gauge railway linking Dar es Salaam with Mwanza, the 2100 MW Stiegler’s Gorge hydro power project, the Bagamoyo port development and the Hoima-Tanga pipeline linking Uganda’s Lake Albert oil fields to the Tanzanian port of Tanga, are also likely to maintain the momentum of Tanzania’s economic growth.
Generally, the low labour costs compared to other countries such as China or in the more industrialised nations have made countries such as Kenya, Tanzania and Ethiopia more attractive investment destinations in recent years.
A recent Working Paper by The Centre for Global Development (CGD), noted that the “general level of prices in Ethiopia is below the level in India and comparable to that of in Bangladesh.” With labour costs rising at a faster pace in countries such as China, large industrial firms are increasingly exploring opportunities for production outside their own territory or even Asia. This has made the East African nations a sweet spot for investment flows.
However, numerous challenges such as poor and deficient infrastructure, burdensome customs procedures, among others, stand in the way of their attractiveness to investment and of the promising GDP growth rates. In Kenya, for instance, poor roads in rural areas and some urban areas impact negatively on transportation or distribution of products. Another major challenge is the unreliable or erratic electricity supplies. This raises costs of production and industries are forced to resort to expensive diesel-powered generators to continue their production.
By Joshua Masinde