East Africa is fast emerging as an important investment destination going by the recent Foreign Direct Investments (FDI), according to the 2014 Africa attractiveness survey by Ernst & Young.
Four East African countries were ranked in the top 10 countries by FDI projects in 2013, showing the regions increasing attractiveness among investors. FDI projects into the region increased by 7.4% in 2013 compared to the previous year, second only to West Africa which registered an improvement of 20.5%.
Also for the first time, the region overtook North Africa in terms of FDI projects. The region that includes Kenya, Tanzania, Uganda, Rwanda and Burundi accounted for 17% of FDI projects flowing into sub-Saharan Africa between 2007 and 2013, which according to the survey have grown at a Compounded Annual Growth Rate (CAGR) of 23.4%, the second highest in Africa.
East Africa’s main attraction lies in its growing market potential which is made up of 210 million people, an improving economic environment, infrastructure development, political stability, ongoing integration through the East African Community (EAC) initiative and the recent discoveries of gas and oil.
Rising disposable incomes have seen financial services, retail and consumer products (RCP) and technology, media and telecommunication (TMT) become the three most targeted sectors in the region. Banks have seen the usage of their mobile phone services by their more than 50 million subscribers increase more than six-fold in the past five years, making East Africa the world’s fastest-growing market. Notable investor countries include Kenya, United States, Britain and India. Kenya leads the pack as the biggest investor increasing its investments by 9.5% in the 2012-13 period according to investment specialists fDi Intelligence.
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Kenya, being the biggest economy in the region, has naturally seen plenty of interest directed its way. The country attracted the second-highest number of FDI projects last year behind South Africa. In addition, FDI projects into the country have been increasing at a CAGR of more than 40% in the past seven years. With such high interest, it’s not surprising that Nairobi is home to some of the biggest international organizations such as HSBC, Bank of China and IBM. The latter even established its first African innovation hub in the capital, further shoring up the city’s status as a telecommunication hub.
The attractiveness survey that tracks FDI in the region shows Nairobi’s share of FDI projects in Africa has increased fivefold from just 1.5% in 2007 to 7.5% in 2013. Nairobi is now listed third as the most attractive city to do business in sub-Saharan Africa.
Tanzania is not far behind, especially following its recent natural gas discoveries. The country, which also ranks as Africa’s third largest gold producer, has seen FDI projects grow at a CAGR of more than 23% in the past seven years which is impressive considering its need for more infrastructure. Dar es Salaam is set to become Africa’s fifth-most populous city in Africa by 2030 and will see the greatest expansion of middle class households with incomes between $5,000 and $20,000 every year by 2030.
Uganda which debuted in the ranking of the top 10 countries in 2013 also grew its FDI projects by more than 20% since 2007. Recent oil discovery may keep the momentum of double-digit growth for a long time to come. Neighboring Rwanda has equally enjoyed impressive growth in the past few years underpinned by huge investments in IT infrastructure – the country laid fiber-optic cables covering the whole country in 2010 – and increasing ease of doing business, which has seen the country ranked 32nd on the World Bank’s Doing Business rankings in 2014 and third in sub-Saharan Africa for its favorable business environment.
The remarkable progress in FDI inflow shows the improving perception toward the region. Ongoing work toward a common currency by 2023, together with the plans to make the region operate as a common market, should further boost East Africa’s attractiveness in the coming years.
Already the common market protocol which came into force three years ago, and set to be fully implemented by 2015, is expected to achieve the four freedoms – free movement of people, goods, services and capital within the region.
This should help grow East Africa’s intra-regional investment and encourage regional integration. With such progress, it’s undoubtable that the future is bright.
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