EAC Investment Conference Focuses on Integration

Barbie Espinol

They came to Kenya’s capital, Nairobi, in their numbers, and with only one thing in mind; to market the East African region as a single trading block in a way 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 next one year that will determine the success of the conference.

Reports from the investment promotion agencies in the region indicate that following the 1st Investment Conference in Kigali, Rwanda, a sizable number of inquiries, project proposals and actual investments have been recorded arising from the conference.

Held against the backdrop of a global economic recession, the Nairobi conference rode on the theme, “Invest in EAC where challenges are opportunities.” Kenya’s Finance Minister Uhuru Kenyatta giving an overview of the conference theme said that it was well selected given the challenges emerging from the global economic and financial crisis, drought and climate changes, which have resulted in high energy costs for the region and reduced economic growth.

Albeit the negative performance of the global economy, the East African countries have had low but above par economic growth for 2009, save for Kenya, which experienced internal shocks at the beginning of last year. Quarter two financial markets review by fund management company AIG Investment indicates that Uganda’s economy grew by 7 per cent last year and is expected to decline to 6 per cent in 2009/10. The Tanzanian Government forecasts GDP growth for 2009 at 5 per cent down from 7.4 per cent last year.

After recording an impressive performance 2007 posting a 7.1 per cent GDP growth, Kenya’s growth last year plummeted to a dismal 1.7 per cent due the post election violence, disruption of the food supply chain and the global recession. Expectations are that Kenya’s GDP will grow by 2.5 per cent this year as effects of the post election violence faded in the previous year.

Uhuru added that after robust growths in the previous years, the economies of Uganda and Tanzania were expected to grow at only 5 per cent in 2009 while Kenya would register an even lower rate of 3 per cent. “However, the growth momentum could be sustained through investment and expenditure in infrastructure and agriculture, sectors that held great stimulus for growth of the regional economy.”

Delivering the key note speech during the official opening, Rwanda’s President Paul Kagame said that insistence by economic analysts that the economic crisis would not affect Africa significantly because the continent’s institutions were not fully integrated into the global financial markets should sound alarm bells to African countries.

“Not being part of the global economy is a crisis itself. EAC should position itself as part of the global system, and not its victim and actively engage in seeking solutions that leverage the region’s abilities and experiences to innovate and meet high and rising goals.”

And as the Kenyan Finance Minister put it, the secret of the regions success lays with investment and expenditure in infrastructure and agriculture. However, these are some of the areas that have proved difficult for Governments to deliver amply to their citizens. Nature has done no good either with some members of the region facing drought. Referring to the Quarter two report, AIG Investment points out that in Kenya, agriculture, which accounts for 23 per cent of the GDP declined by 5.1 per cent compared to the same period last year.

The Conference noted that while agriculture remains the backbone of the region’s economy and contributes largely to employment levels and exports, EAC region remains food insecure, despite availability of sufficient arable land and a large labour force.

In line with the conference theme, the participants noted that opportunities were available through development of value chains along the agricultural sector; value addition and product diversification. It is important for countries to invest in value addition processes for all agricultural exports so as to increase quality, gain a competitive edge and generate more revenues out of increased sales and competitiveness. Uganda will from next year become the first country in Africa to brand its own coffee selling it into the international market as the finished product.

Kenya’s President Mwai Kibaki urged East African farmers and investors to increase investment in the agricultural sector to alleviate perennial food shortage in the region. Zanzibar’s President Dr Abeid Karume also emphasized the need to increase investment in the agricultural sector through strengthening of agricultural technology and infrastructure. Infrastructure also remains as one of the challenges facing the agricultural sector. Development of the “last-mile infrastructure” has been seen as an avenue of enhancing delivery of inputs to the actual user and catalyze the production process.

Governments in the region, supported by the development partners should mobilize sufficient resources to rapidly develop a bankable pipeline of regional infrastructure projects in particular targeting roads, railways and energy sub sectors. Dr Enos Bukuku, 1st Deputy Governor of the Central Bank of Tanzania says that the country does not cut down on infrastructure budgets during tough times. The same sentiments are shared by the Prof. Maggie Kigozi, Executive Director of the Uganda Investment Authority who says the country is working on improving on the infrastructure to enable the private sector make use of it effectively during, and after the recession.

The matter of regional licensing for infrastructure service providers should be incorporated within the provisions of the Common Market Protocol to ensure that EAC benefits from capacities available in the region for expansion of and access to infrastructure.

The ongoing harmonization of policies in the infrastructure sub-sectors should be fast tracked, and governments should ensure the implementation of these harmonized policies at national levels is expedited. Moving with the global trends and also enhance economic sustenance, participants were in agreement that the region should invest in alternative forms of energy since each of the member sates had their own share of power problems. Over-dependence on hydropower generation, has contributed to power shortages experienced in the region. Although all the EAC Partner States are making efforts to diversify from hydro-generation, hydropower generation will continue to be an important resource in the region’s generation mix.

Rwanda’s Energy Minister Dr Albert Butale said the region’s potential sources of renewable energy such as wind, geothermal and natural gases were largely unexploited. “It is time investors looked beyond the traditional sources of energy.” Marketing the region as one market should nevertheless undermine the intra trade activities that have been ongoing. As the whole world is grappling with containing the economic crisis, most countries in the West have cut down on imports thus drastically reducing revenues from African countries that are derived from exports.

The East Africa Trade Report 2008 shows that overall investment inflows to the EAC region dropped significantly by 11.8 per cent from US$ 8,021.9 million recorded in 2006 to US$ 7,118.5 million in 2007. In intra-EAC investment flows, Uganda and Tanzania benefited most with Kenya being the dominant player. On the other hand, Kenya attracted minimal investment inflows from EAC Partner States in the previous years but virtually recorded no investment inflows in 2006 and 2007.

In the face of these challenges, the EAC is maintaining a strategic posture towards stronger political and economic business environments to weather the storm. The IMF predicts an overall 1.3 per cent decline in global economic activity in 2010 particularly of the economies of the industrialized countries, while some of the EAC countries, and a number of African countries are projected to grow by between 5 per cent and 7 per cent. How the five economies perform and attract investment will be under review at the next investment conference to be held next year.

The parley also focused on energy, telecommunications, tourism and mining. Other areas delved on were infrastructure development, banking and financial services, manufacturing, agriculture and agro-processing. There was evidently renewed confidence among international investors on East Africa as a business hub. In the past few months, foreign businesses have been streaming into the region. Banking and financial services, manufacturing and mining, and other sectors are attracting West African and Asian investors, especially.

Currently, the region’s central bank governors are deliberating on an EAC monetary convergence and payments system. If implemented, the region will have a single currency and an instantaneous payment system. The new system will do away with the “abnormally high” transaction costs arising from the multiplicity of banking regimes and foreign exchange fees.

Observers say East Africa could soon be an economic tiger on the continent if the momentum to revitalize the region’s economy is maintained. From this financial year’s budgets, it is apparent that EAC states are determined to improve the business climate among them. The 2005 World Trade Organization appraisal of trading blocs in Africa says EAC is one of the most active on the continent. Since the formulation of the strategic plan in Kigali, major infrastructural works have started. Among them are 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 Program. More than $1.7 billion is expected to be spent on these projects.

To ease cross-border movement of goods, Uganda and Kenya have partnered with the Chinese government to build a second railway line between Mombasa and Kampala. The construction is expected to begin in the last quarter of the next financial year and will cost Kenya more than KShs3 billion ($37.5 million). Observers, however, say there is a need for the Community to cushion itself from rising commodity prices and depreciation of currencies.

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