A road under construction in Kenya. Roads are being built to facilitate
transport along the East African corridors. Picture/File
Despite mixed views on the stability of East
Africa’s economic performance, one can objectively say the economies are
growing and investors are confident about their performance.
The fourfold oversubscription of Kenya’s debut
Eurobond is testimony to this. With such investor appetite for East
Africa, financial services providers (FSP) are constantly assessing ways
to leverage on this for growth.
East Africa is changing fast. Once considered a
sleepy backwater, the bloc is attracting investors’ attention from every
corner of the globe.
Financiers are lured by Kenya, the regional
financial hub with the largest GDP in East and Central Africa. Rwanda,
one of the world’s 20 fastest growing economies, with average GDP growth
of over 7 per cent in the past 10 years; and Tanzania, which is keen to
attract foreign investments by easing its processes of doing business.
Similarly South Sudan has lucrative oilfields and
infrastructure projects, and Uganda’s fertile land potentially provides
cheap raw materials for industries.
The bulk of resource-rich East Africa’s GDP comes
from agriculture, precious metals and stones. With recent discoveries,
oil and gas will soon join the list of vast resources.
Ideally, suppliers and buyers of commodities
should mitigate adverse price movements through financial instruments
and their derivatives, but to date the region only has rudimentary
commodity exchanges. Should we then be shocked that derivatives of East
African metals are being traded on an exchange in Toronto?
The region’s demographics are also shifting. Half
of East Africa’s population is expected to be living in cities by 2050.
Along with the demand for urbanisation, East Africa’s growing middle
class and young population aged between 18 and 35 has become a constant
refrain in economic analyses of the region.
In 2013, East Africa clinched 26 out of 84 private
equity deals in sub Saharan Africa , making it the region with the
highest PE deals. While many have ventured, adaptation to the nature of
local markets remains a challenge.
Picking the right approach for each market is
critical; so is understanding the practical challenges that global
businesses face when it comes to executing their chosen strategies.
While financial markets remain attractive, the
biggest PE deals were recorded in infrastructure and extractive
industries, with opportunities to fund investments in development of
other sectors.
Investments are being made in energy projects,
whereas roads and railways are being built to facilitate transport along
the East African corridors. Creative investments are needed to finance
development projects; hence FSPs should generate solutions that are
unique to EA needs.
So investors are targeting high growth
investments. Are some financial institutions holding back as others cash
in on the most gainful opportunities? I doubt it.
Opportunities are ripe for picking; all around are
forces that could spur or inhibit your growth as a financial services
provider, but what is important is not so much to have data as to use it
to your advantage.
Perhaps you are a pessimist who looks at the economy and sees innumerable risks that demand impossible premiums.
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