The Business Environment in the East African Community
With a population of more than 130 million and combined GDP of about USD $75 billion, EAC is one of the largest single-bloc regional markets in Africa. Market access is also increased through a series of mutually beneficial partnerships with other regional blocs such as COMESA (Common Market Eastern and South Africa) and SADC (Southern African Development Community). Over recent years the EAC region has achieved progress towards regional integration, infrastructure and institutional reforms and indications are positive for this trend to continue in the future, with large infrastructure projects in the pipeline or ongoing, such as a rail project linking Kenya port town in Mombasa to Kampala (Uganda), Kigali (Rwanda),and Juba (South Sudan).
Kenya has the largest economy amongst the members of EAC in terms of GDP. Kenyaǯs GDP accounts for 40 percent of the regionǯs GDP, followed by Tanzania at 28 percent, Uganda at 21 percent, Rwanda at 8 percent and lastly Burundi at 3 percent. In terms of GDP at current market prices, Kenyaǯs 2011 GDP stood at USD $34 billion, well ahead of the closest rival economy, Tanzania, with a GDP of USD $24 billion. The overall performance of the region depends on what happens in Kenya to a large extent.
The Business Environment and Opportunities in East Africa
Recent years saw improvements to the business environment in all five economies making up the East African Community (EAC) – that is, Burundi, Kenya, Rwanda, Tanzania and Uganda. The EAC saw its five governments implement a number of regulatory reforms to improve the business environment for local businesses and encourage entrepreneurship in the region.
East Africa is touted to be the fastest growing region on the continent. With extractive resources, untapped wood, fuel, coal, wind, biomass and solar power, the region is set for competitive trading on the world markets. The key drives of these developments are:
Infrastructure
As a result of urbanisation, unplanned settlements have mushroomed and in Kenya, for example, a large percentage of Nairobi’s population was living in informal settlements. In response, East African governments have prioritised upgrading slums, enacting coordinated policies which address housing and related infrastructure, like electricity and water supply. The result is significant infrastructure development transforming cities across East Africa: Nairobi and Mombasa in Kenya, Bujumbura in Burundi, Kigali in Rwanda; Entebbe in Uganda and Addis Ababa in Ethiopia.
Natural Resources
Recent discoveries of oil and gas in East Africa – on-shore in Kenya and Uganda and offshore in Tanzania, in particular – are providing further impetus for development in the region. Described as the new hotspot for oil and gas in Africa, over the next five years, investment in this industry – especially upstream capital investment – is set to soar, along with a corresponding increase in the level of production. Exploration for and production of oil and gas has spin-effects – increased infrastructure investment and development as roads and telecommunications networks are established or upgraded.
The Growing Middle Class
The African Development Bank (ADB) reports that East Africa’s middle class has hit the 29 million mark, thanks to solid investment in education in the last two to three decades. The ADB notes that a well-established middle class is both a catalyst for the growth of democracy and economy. With more money to spend, middle-class consumers are moving away from ‘hand-to-mouth living’, driving demand for consumer goods and services and providing a wealth of opportunities for companies targeting this market segment.
Agriculture
With a burgeoning population come mouths to feed! Accordingly, investment in agricultural development in the region is of paramount importance. Recently, the European Commission set aside $9.2 million for agriculture research and development and to support agricultural projects in East Africa. Agricultural infrastructure, in particular, is high on the list – silos and other storage facilities and bettering road and rail networks and irrigation systems.
Innovations in the Financial Services Industry
Recent innovations like Kenya’s M-PESA, which allows people to send and receive money via their mobile phones – have changed the way in which East Africans interact with money, allowing entrepreneurs to transition away from a cash-based economy. More banks and financial institutions are exposing East Africans to online payment facility. This allows entrepreneurs increased access to and integration with the global marketplace.
Useful Links
African Development Bank (ADB)