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December 2020: Update on recent developments for investors across East Africa

  • Market Insight 15 December 2020 15 December 2020
  • Africa

  • Corporate

In this article, we highlight some of the key recent developments investors should be aware of across various sectors in East Africa including information on the progress at the hydropower station in Tanzania, investment opportunities in Rwanda and Kenya, expansion in the banking sector in Ethiopia and much more.

Key recent developments in East Africa:

Tanzania

Dam construction commences at the Julius Nyerere hydropower station

In a bid to further its industrialisation agenda, Tanzania has taken an important step in the ongoing construction of the Julius Nyerere hydropower station. On 18th November, Prime Minister Kassim Majaliwa launched the construction works of the dam section of the project. It is planned that the power plant will have an installed capacity of 2,115 megawatts upon its completion in June 2022.

On a separate note, while addressing the parliament earlier this month, President Magufuli reiterated the fact that Tanzania is taking key steps to ensure an improved business environment. The President mentioned that key reforms are being undertaken in the regulatory sectors in line with the Blueprint for Regulatory Reforms to Improve the Business Environment published in May 2018.

As a result of this, we have seen positive steps being taken such as the digitalisation of the application system at the Tanzanian Companies House which has resulted in a relatively improved turnaround times in business registration and obtaining general business licences.

Tanzania and Malawi to strengthen business ties

Following the visit to Tanzania by the Malawian President, the Tanzanian business community through the Tanzania Private Sector Foundation (TPSF) is considering exploring the untapped business and investment opportunities in Malawi.

It has been reported that the annual volume of trade between these two countries is US$81 million. In view of this, TPSF believes that Malawi presents potential investment opportunities in areas such as commercial agriculture, manufacturing and mining.

In their respective speeches, President Magufuli and President Chakwera indicated that they have agreed to strengthen bilateral cooperation in areas such as trade, transport, communication and energy.

Uganda

Investment opportunities in Uganda

At the 2020 Development Policy and Investment promotion retreat, the Uganda Investment Authority (UIA) revealed its new strategic plan of increasing domestic investments to US$1 billion from the current US$328.7 million by 2025.

In view of this, the UIA has launched an online platform to facilitate business registration, land title verification, online investment licensing, application for environment impact assessment and online payment. The UIA also plans to establish an SME database – this aims to assist the growth of SMEs in short and medium term.

According to the UIA’s Director of Finance and Administration, Barbara Kabuchu, this plan will help in increasing the contribution of foreign direct investment to the gross domestic product up to 5% by 2025 and creation of 196,075 direct jobs. She also added that UIA plans to place Uganda among top 5 African countries for "Ease of Doing Business" and to increase Uganda’s competitive ranking on the continent up to 110 by 2025 from the current position of 137.

The United Arab Emirates (UAE) is invited to invest in Uganda

At the 4th Uganda-UAE Business Convention held from 21 to 22 October 2020, the Prime Minister of Uganda invited the UAE and the Middle East to invest in Uganda. The Prime Minister highlighted the potential investment opportunities in areas such as oil and gas, infrastructure development, energy, tourism and trade. Further, he urged investors to take part and explore opportunities presented by the proposed construction of the East African Crude Oil Pipeline.

According to the Prime Minister, the government ensures the creation of a favourable investment and trade arena where both investors and the state will benefit through mutual beneficial agreements.

Rwanda

Fund for Export Development set up in Rwanda

On 22nd November, Rwanda and Afrexim Bank signed an agreement for the establishment of the Fund for Export Development in Africa (FEDA). FEDA aims to address the issue of long term funding and to attract foreign direct investment into Africa.

FEDA intends to initially raise US$500 million and then grow to US$1 billion in the next few years. It has been reported that Afrexim Bank has already committed US$350 million. It is hoped that the funds will help the growth of small businesses in Africa and further the continent's industrial aspirations.

World Bank to invest up to US$1.2 billion in Rwanda

Recently, it was reported that the World Bank aims to invest up to US$1.2 billion across various sectors in Rwanda by 2023. This is in line with the Rwanda country framework for 2021 to 2026 which was inaugurated in this month.

It is hoped that these funds will provide the much needed economic relief in the post-COVID economic recovery. It is also hoped that this will improve the Rwandan economy by developing the following key areas; human capital, private sector, access to infrastructure and digital economy, agricultural productivity and commercialisation and urban development. 

According to the World Bank's country manager, Roland Pryce the primary focus has been in relation to the development of human capital. She has also indicated that works have already begun by ensuring improvement in the learning environment.

Kenya

Expected competition in major infrastructure

Egyptian construction giant, Wady El Nile, one of the largest engineering and construction companies based in Cairo has just opened up a regional office in Nairobi.

Wady El Nile is active in both public sector and private sector projects including infrastructure, real estate, healthcare, transportation, education, youths and sports, archaeological restoration, irrigation and technology among other fields.

By setting up an office in Nairobi, the company will have better access to big ticket work in the Sub-Saharan African region and also build stronger relationships with its customers in this area.

In recent years, Chinese contractors have been able to secure a lot of public sector infrastructure work in Kenya primarily because of their backing by China Exim Bank.

Wady El Nile will definitely create some competition in the region by setting up in this region as it has backing from the Egyptian government and banks.

Access to Special Economic Zones to Chinese Firms

Kenya’s Investment Authority is marketing Special Economic Zones (SEZs) to Chinese investors in Mombasa, Naivasha and Machakos with about 9,000 acres designated for investments.

As part of its post-COVID-19 economic recovery strategy, Kenya is hopeful that the SEZs and the 75 Export Processing Zones (EPZs) will be key in encouraging foreign direct investment.

The SEZs and the EPZs include cheaper electricity tariffs, which is one of the most pressing concerns for industries in this region.

There are also tax incentives and exemptions for example for excise duty, income tax, customs duty and value added tax on all special economic transactions by licensed SEZs enterprises, developers and operators established within the zones.

Ethiopia

Bidding process for two new full-service telecommunications licenses

With twelve companies having submitted expressions of interest for two new full-service telecommunications licenses in June of this year, only two will be chosen to submit proposals. The request for proposals is looming and due to be announced shortly.

Kenya’s Safaricom has formed a consortium with its parent companies Vodafone and Vodacom and had submitted an expression of interest earlier this year. Recent news suggests that Safaricom is expecting a lower bid price following news that only the locally owned non-financial institutions will be allowed to offer mobile money services. Safaricom’s key asset is M-pesa, the mobile money application and if they cannot provide this service in Ethiopia, this will affect their profitability and payback period of their investment.

The Ethiopian telco market offers substantial potential considering its mobile penetration rate is only 45% while the population of Ethiopia is more than 110 million people.

Bank liberalisation in Ethiopia

A recent radical move to boost the banking sector in Ethiopia has been hailed a success. Ethiopia issued new banknotes to reduce cash-hoarding and stunt tax evasion. This required people to hand in cash to the banks in exchange for a bank account from which they can withdraw the new notes and resulted in 1.3 million previously unbanked people having to establish bank accounts.

While Ethiopia remains one of Africa’s most tightly government-controlled banking system, it has made small moves to liberalise the sector – for example, KCB and Kenya’s Equity Bank hold licences to create local representation offices.

The Governor of the National Bank of Ethiopia has indicated that the sector will not always remain closed off to foreign banks but will eventually open up more – there are currently over a dozen applications from commercial banks seeking to establish themselves in Ethiopia.

A new directive by the Governor permits the private sector to buy into digital fintech operators and allows non-financial institutions to operate. This is all in a bid to expand into mobile and internet banking.

Clyde & Co has the largest “on the ground” presence of any international law firm in East Africa. From our hub in Dar es Salaam, Tanzania and our newly opened office in Nairobi, Kenya, we act as international counsel on transactions across East and Southern Africa. Our team advises across the full spectrum of corporate transactions, including cross border M&A and private equity investments.

Further information

If you would like further information on any issue raised in this update please contact; Michael Strain, James Pius, Amreen Ayub.

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