EAC investment conference focuses on integration
They arrived in the Kenyan capital, Nairobi, in great numbers and with only one thing in mind; market the East African region as a single trading bloc in order to foster a strong economy and competitive business environment. With the EAC Secretariat providing the platform through the 2nd EAC Investment Conference, it is what happens in the coming year that will determine the success of the conference.
Reports from investment promotion agencies in the region indicate that following the 1st Investment Conference in Kigali, Rwanda, a considerable number of inquiries, project proposals and actual investments emerged from the conference.
Held against the backdrop of a global economic downturn, the Nairobi conference was themed “Investing in EAC where challenges are opportunities”. Kenyan Finance Minister Uhuru Kenyatta, giving an overview of the conference theme, said it was well selected due to the challenges arising from the global financial and economic crisis, drought and climate changes, which have resulted in high energy costs for the region and reduced economic growth.
Despite the poor performance of the global economy, East African countries have had low but strong economic growth in 2009, except for Kenya, which experienced domestic shocks early last year. A review of the financial markets for the second quarter by fund management company AIG Investment indicates that Uganda’s economy grew by 7 per cent last year and is expected to slow to 6 per cent in 2009/10. The Tanzanian government forecasts 2009 GDP growth of 5 percent, down from 7.4 percent last year.
After posting an impressive performance in 2007, with GDP growth of 7.1 percent, Kenya’s growth slumped to a dismal 1.7 percent last year due to post-election violence, the disruption of the food supply chain and the global recession. Expectations are for Kenya’s GDP to grow 2.5 percent this year as the effects of post-election violence faded the year before.
Uhuru added that after strong growth in previous years, the Ugandan and Tanzanian economies were expected to grow just 5 percent in 2009, while Kenya was expected to post an even lower rate of 3 percent. “However, the growth momentum could be sustained through investment and spending in infrastructure and agriculture, sectors that had a great stimulus for the growth of the regional economy.”
Delivering the keynote address at the official opening, Rwandan President Paul Kagame said economic analysts’ insistence that the economic crisis would not significantly affect Africa because the continent’s institutions were not fully integrated into global financial markets should set off alarm bells for African countries.
“Not being part of the global economy is a crisis in itself. EAC must position itself as part of the global system, and not as its victim, and actively participate in the search for solutions that take advantage of the capabilities and experiences of the region to innovate and meet high and growing goals. “
And as Kenya’s Finance Minister said, the secret to the region’s success lies in investment and spending in infrastructure and agriculture. However, these are some of the areas where governments have found it difficult to provide for their citizens. Nature has also done no good for some members of the region facing drought. Referring to the second quarter report, AIG Investment notes that in Kenya, agriculture, which accounts for 23 percent of GDP, decreased by 5.1 percent compared to the same period last year.
The Conference noted that while agriculture remains the backbone of the region’s economy and contributes greatly to employment levels and exports, the EAC region remains food insecure, despite the availability of enough arable land and a large labor force.
In line with the theme of the conference, participants noted that there were opportunities available through the development of value chains throughout the agricultural sector; value addition and product diversification. It is important for countries to invest in value-added processes for all agricultural exports in order to increase quality, gain a competitive advantage, and generate more revenue from increased sales and competitiveness. Starting next year, Uganda will become the first country in Africa to sell its own coffee as a finished product on the international market.
Kenyan President Mwai Kibaki has urged East African farmers and investors to increase investment in the agricultural sector to alleviate perennial food shortages in the region. Zanzibar President Dr. Abeid Karume also emphasized the need to increase investment in the agricultural sector by strengthening agricultural technology and infrastructure. Infrastructure also remains one of the challenges facing the agricultural sector. The development of “last mile infrastructure” has been seen as a way to improve the delivery of inputs to the actual user and catalyze the production process.
Governments in the region, with the support of development partners, must mobilize sufficient resources to quickly develop a bankable portfolio of regional infrastructure projects, particularly targeting the road, rail, and energy subsectors. Dr. Enos Bukuku, first deputy governor of the Central Bank of Tanzania, says the country does not cut infrastructure budgets during tough times. The same sentiments are shared by Prof. Maggie Kigozi, Executive Director of the Uganda Investment Authority, who says the country is working to improve infrastructure to enable the private sector to use it effectively during and after the recession. .
The issue of regional licenses for infrastructure service providers should be incorporated within the provisions of the Common Market Protocol to ensure that the EAC benefits from the capacities available in the region for expansion and access to infrastructure.
The ongoing harmonization of policies in the infrastructure subsectors must be accelerated, and governments must ensure that the implementation of these harmonized policies at the national level is accelerated. Moving forward with global trends and also improving economic livelihoods, participants agreed that the region should invest in alternative forms of energy as each of the member states had their own share of energy problems. Over-reliance on hydroelectric power generation has contributed to the power shortages experienced in the region. Although all EAC member states are making efforts to diversify away from hydroelectric generation, hydroelectric generation will continue to be an important resource in the region’s generation mix.
Rwandan Energy Minister Dr. Albert Butale said the region’s potential renewable energy sources, such as wind, geothermal and natural gases, were largely untapped. “It’s time for investors to look beyond traditional sources of energy.” However, the commercialization of the region as a single market should undermine the internal commercial activities that have been ongoing. As the whole world struggles to contain the economic crisis, most Western countries have reduced imports, which has drastically reduced the income of African countries derived from exports.
The 2008 East Africa Trade Report shows that total investment flows in the EAC region fell significantly by 11.8 percent, from US$8,021.9 million in 2006 to US$7,118.5 million in 2007. In intra-EAC investment flows, Uganda and Tanzania benefited the most with Kenya the dominant player. On the other hand, Kenya attracted minimal investment inflows from EAC partner states in previous years, but recorded virtually no investment inflows in 2006 and 2007.
In the face of these challenges, the EAC maintains a strategic stance toward stronger political and economic business environments to weather the storm. The IMF forecasts an overall decline of 1.3% in global economic activity in 2010, in particular for the economies of industrialized countries, while some of the EAC countries and several African countries are projected to grow between 5% and 7% . How the five economies function and attract investment will be reviewed at the next investment conference next year.
The parliament also focused on energy, telecommunications, tourism and mining. Other areas deepened were the development of infrastructure, banking and financial services, manufacturing, agriculture and agro-processing. Clearly, there was a renewed confidence among international investors in East Africa as a business hub. In recent months, foreign companies have been arriving in the region. Banking and financial services, manufacturing and mining, and other sectors are especially attracting investors from West Africa and Asia.
Currently, the region’s central bank governors are deliberating on an EAC currency convergence and payments system. If implemented, the region will have a single currency and an instant payment system. The new system will eliminate the “abnormally high” transaction costs that arise from the multiplicity of banking regimes and exchange rates.
Observers say East Africa could soon become an economic tiger on the continent if momentum to revitalize the region’s economy is sustained. From this fiscal year’s budgets, it is evident that the EAC states are determined to improve the business climate among themselves. The 2005 World Trade Organization assessment of trading blocs in Africa says that EAC is one of the most active on the continent. Since the formulation of the strategic plan in Kigali, important infrastructure works have been started. These include the EAC Road Network Project, the EAC Transport and Trade Facilitation Project, the Mombasa-Dar es Salaam Natural Gas Pipeline, and the Regional ICT Support Programme. More than $1.7 billion is expected to be spent on these projects.
To facilitate the cross-border movement of goods, Uganda and Kenya have partnered with the Chinese government to build a second rail line between Mombasa and Kampala. Construction is expected to start in the last quarter of the next fiscal year and will cost Kenya more than KShs3 billion ($37.5 million). Observers, however, say the Community needs to hedge against rising commodity prices and depreciating currencies.