By 
They arrived in the Kenyan capital, Nairobi, in large numbers and with only one thing on their minds; to market the East African region as a single trading bloc in order to foster a strong economy and a competitive trading 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, there was a considerable amount of consultation, project proposals and actual investment arising from the conference.
Held against the backdrop of a global economic downturn, the Nairobi conference was based on the theme “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 economic and financial crisis, drought and climate changes, which have resulted in high energy costs for the region and reduced economic growth.
Despite the negative performance of the global economy, East African countries have had low but higher economic growth in 2009, except for Kenya, which experienced internal shocks early last year. A second quarter financial markets review by fund management company AIG Investment indicates that Uganda’s economy grew by 7 percent last year and is expected to slow to 6 percent in 2009/10. The Tanzanian government forecasts GDP growth for 2009 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 last year plunged to a dismal 1.7 percent 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 the post-election violence faded the previous year.
Uhuru added that after strong growth in previous years, the economies of Uganda and Tanzania were expected to grow by just 5 percent in 2009, while Kenya would register 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 the insistence of economic analysts that the economic crisis would not significantly affect Africa because the continent’s institutions were not fully integrated into global financial markets should ring 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 region’s capabilities and experiences to innovate and meet high and growing goals. “
And as the Kenyan 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 deliver to their citizens. Nature hasn’t done any good to some members of the region facing drought either. 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 stressed 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, need to mobilize sufficient resources to rapidly 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 difficult times. The same sentiments are shared by Prof. Maggie Kigozi, Chief Executive 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 available capacities in the region for expansion and access to infrastructure.
The ongoing harmonization of policies in the infrastructure subsectors needs to be accelerated, and governments need to ensure that the implementation of these harmonized policies at the national level is accelerated. Moving with global trends and also improving economic livelihood, the 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. Excessive reliance on hydroelectric power generation has contributed to the power shortages experienced in the region. Although all EAC partner 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.
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 untapped. “It is time for investors to look beyond traditional energy sources.” However, the commercialization of the region as a single market should undermine the internal trading activities that have been going on. As the entire world struggles to contain the economic crisis, most Western countries have reduced imports, which has drastically reduced African countries’ income from exports.
The East Africa Trade Report 2008 shows that total investment flows into the EAC region fell significantly by 11.8 per cent, from US$8,021.9 million in 2006 to US$7,118.5 million in 2007. In investment flows within the EAC, Uganda and Tanzania benefited the most with Kenya being the dominant player. On the other hand, Kenya attracted minimal investment inflows from EAC partner states in previous years, but saw virtually no investment inflows in 2006 and 2007.
Faced with these challenges, the EAC maintains a strategic stance towards stronger political and economic business environments to weather the storm. The IMF forecasts an overall decline of 1.3 per cent in global economic activity in 2010, particularly in the economies of industrialized countries, while some of the EAC countries and several African countries are projected to grow by between 5 and 7 percent. . The way the five economies function and attract investment will be reviewed at the next investment conference to be held next year.
The parliament also focused on energy, telecommunications, tourism and mining. Other in-depth areas were infrastructure development, banking and financial services, manufacturing, agriculture and agro-processing. Clearly, there was renewed confidence among international investors in East Africa as a business hub. In recent months, foreign companies have been pouring into the region. Banking and financial services, manufacturing and mining, and other sectors are especially attracting investors from West Africa and Asia.
Currently, the governors of the region’s central banks are deliberating on an EAC payment and monetary convergence system. If implemented, the region will have a single currency and an instant payment system. The new system will eliminate “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 the momentum to revitalize the region’s economy is maintained. From this fiscal year’s budgets, it is clear that the EAC states are determined to improve the business climate among themselves. The World Trade Organization’s 2005 assessment of trading blocs in Africa says the EAC is one of the most active on the continent. Since the formulation of the strategic plan in Kigali, major infrastructure works have started. These include the EAC Road Network Project, the EAC Trade and Transport 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 railway 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 that the Community needs to protect itself from rising commodity prices and depreciating currencies.