Potential investment sectors in East Africa

• Over the previous five years, East African nations spearheaded by Kenya, Ethiopia, Rwanda, and Tanzania have had at least 5 per cent growth rates
• Investors are drawn to the East African region because of its favourable economic development, political stability, improved regulatory environment, and large market of approximately 120 million people.
• East Africa is a massive economic zone with a constantly rising consumer market and unparalleled market access.

Over the previous five years, East African nations spearheaded by Kenya, Ethiopia, Rwanda, and Tanzania have had at least 5 per cent growth rates.

As a result, East African countries are increasingly appealing to international investors and giant consumer corporations. Indeed, within Sub-Saharan Africa, East African nations have witnessed a surge in consumer goods investments, particularly in Kenya and Ethiopia and, to a lesser extent, Tanzania and Uganda.

Investors are drawn to the East African region because of its favourable economic development, political stability, improved regulatory environment, and large market of approximately 120 million people.

East Africa’s economy is booming, with yearly GDP growth trending upward. The region’s GDP was expected to grow by roughly 5 per cent by 2020. Despite the Covid-19 epidemic, the region increased by 3 per cent in 2021 and is expected to increase to 5 per cent in 2022.

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Despite East Africa’s economic imbalances, Kenya, Ethiopia, Tanzania, Seychelles, Uganda, and Djibouti are showing hopeful development. On the other hand, Eritrea, Somalia, and South Sudan are still mired in violence and poverty.

East Africa has been described as a “hotbed” of investment potential. This is true not just because of its prospects but also because it is easier to do business in Africa than in most other areas.

East Africa is a massive economic zone with a constantly rising consumer market and unparalleled market access. Furthermore, it comprises states with important geographical locations that provide connectivity with the rest of the world, making it appealing to investors. East Africa also boasts thriving capital markets and a well-established private sector.
Where can I invest in East Africa?

Massive investments are risky in many African nations due to unpredictable and uncertain political conditions. Still, these risks are likely to pay off in East African countries like Kenya, Tanzania, Ethiopia, and Uganda. Potential investment sectors in East Africa include:

Energy

Modern energy sources are critical for socioeconomic growth, and such investments are critical in achieving equitable access to energy in Africa. The region has adopted regional integration to strengthen markets and draw more significant energy investments in the East African region. Market changes have also occurred at the regional and national levels, with deregulation being adopted as a strategy to lure energy investments in East Africa. Clean energy projects are presently driving the sector.

Agriculture

Agriculture accounts for around 36 per cent of the East African economy’s Gross Domestic Product (GDP), although it remains primarily underutilized. A wide range of food and cash crops are available for large-scale commercial farming.

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Fisheries, cotton, cattle, tobacco, and coffee cultivation are the primary investment prospects in the industry. However, analysts believe that shifting from subsistence to commercial farming is the key to sector growth.

Petroleum and natural gas

A Petroleum Conference is organized in East Africa every two years to comprehend the sector’s potential better. Among the resolutions passed was the need to work with partner countries to align laws and legal and budgetary frameworks relevant to petroleum exploration.

Recent seismic and magnetic measurements in Burundi have shown the presence of oil beneath Lake Tanganyika and the Rusizi river basin.

The petroleum potential of Kenya is concentrated in four sedimentary basins: Anza, Mandera, Tertiary Rift, and Lamu. Turkana has also been revealed to have oil potential. Hydrocarbon potential exists in Rwanda’s northwestern region and deep beneath Lake Kivu.

Significant gas finds have been found in Tanzania around the coasts of Songo Songo Island and Mnazi Bay. Several mining businesses in Uganda have obtained mining permits and will shortly begin exporting oil.

Tourism

East Africa sees nature-based tourist earnings as a foundation of their individual countries’ future economic success. Tourist development is viewed as a critical pillar for national development and a method to alleviate poverty, create foreign currency for the government, promote wildlife conservation, and be a significant support basis for tourism operations, according to Kenya Vision 2030.

The East African Community (EAC) partner nations (Kenya, Uganda, Tanzania, Rwanda and Burundi, South Sudan, and, most recently, the Democratic Republic of the Congo) have also increased their tourism and wildlife industries collaboration. Task groups have been created to produce a work plan for the research and piloting of a single tourist visa to boost the sector’s growth.

Mining

East African nations are well endowed with a diverse range of mineral resources. Burundi, for example, is rich in uranium resources, gold, Colombo-tantalite, cassiterite, nickel, and vanadium.

Kenya has four mineral belts:

• The gold greenstone belt in western Kenya extends to Tanzania.
• The Mozambique belt passes through central Kenya and is the source of Kenya’s unique gemstones.
• The Rift belt, which has diatomite, fluorspar, and soda ash.
• The coastal belt that has titanium.

Tanzania is rich in minerals such as gemstones, diamonds, base metals, and gold. In contrast, Uganda is rich in minerals such as diatomite, phosphates, limestone, tungsten, iron ore, tin, copper, cobalt, and beryllium.

The Democratic Republic of the Congo is perhaps the region’s most prominent mining centre, with significant undeveloped gold, cobalt, and high-grade copper deposits.

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The DRC produces well over 100,000 metric tons of cobalt, accounting for 70 per cent of world output. The DRC is also the third-largest producer of industrial diamonds, accounting for around 21% of global production.

The nation has some of the most acceptable quality copper deposits globally, with certain mines estimated to have grades of 3 per cent, much greater than the worldwide average of 0.6 – 0.8 per cent.

With lower operational expenses than traditional gold producing countries such as South Africa, the DRC’s gold mining sector is seeing increasing attention from mining multinationals.

 Construction and Housing

Firms from significant economies are interested in Africa’s building business. This is due to the accumulation of advantages and the availability of massive investment possibilities in energy and infrastructure, inexpensive labour, and a rapidly rising consumer market.

With strong economic growth policies and growing commodity prices, a good business climate exists. East Africa has the most projects documented as a region, with 139 projects. The projects are located throughout 43 of Africa’s 54 countries.

Finance and Banking

East African countries might eventually concentrate on synchronizing their banking laws to merge their financial institutions. Commercial banks and other services such as brokerage, investment consultancy, asset appraisal, sales and bank assurance, asset management, real estate financing, leasing finance, agricultural finance, and consulting services have investment potential.

The fast rise of the informal sector creates opportunities for loans and associated services. Insurance services are also in high demand.

The East African Securities Regulatory Authority assists member nations in developing capital markets institutions and encourages information sharing to help enforce rules and regulations in various countries.

Information Technology and Communication

Over the last decade, the information and communications technology (ICT) industry has been a critical engine of economic growth in East Africa, expanding by 40 per cent.

To date, substantial international and local firms have mainly driven growth. Small and medium-sized firms (SMEs) are positioned to play a more prominent role in the industry’s next expansion phase. However, they do confront a slew of system-wide problems that must be solved for them to flourish.

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Within the previous five years, this industry has had the fastest annual compounded growth rate of 40 per cent globally. Mobile phones dominate the industry, significantly outpacing other communication methods except for radio and newspapers.

Manufacturing

Despite the hardships caused by the Covid-19 outbreak, the East African industrial industry still provides business potential. The most prominent areas of interest are considered to be packaging and the circular economy.

Plastic carrier bags, for example, were outlawed in Kenya in 2017, and the government is developing an extended producer responsibility (EPR) plan. According to Manufacturing Africa’s research, the assembly of TVs and refrigerators is developing as an unexplored possibility, particularly in Kenya.

The potential market is projected to be worth more than $170 million, with margins ranging from 10 per cent to 15 per cent. There is also little local competition, as the country only has two domestic assemblers.