Regional Intergration

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The long anticipated flotation of a top Kenyan mobile phone company is expected to proceed today despite calls from some quarters to shelve the plan. Safaricom, billed  as the largest and the most lucrative IPO in East Africa, will be listed on Nairobi Stock Exchange (NSE) beginning Friday March 28 and close on April 23. The flotation is seen as a major test of investor confidence in Kenya after last December election violence.

The Government of Kenya plans to publicly float 25% (or 10 billion shares) of its 60% stake in the company. The remaining 40% company holdings are held by the British telecoms, Vodafone (VOD.L). Local investors, including citizens from East Africa Community (EAC) nations of Tanzania, Uganda, Rwanda and Burundi, are allocated 6.5 million shares. Foreign institutional investors are allocated the remaining 3.5 billion shares.

The company expects to raise 50 billion Kenyan shillings ($767 million) from the listing, at 5 shillings per share. Safaricom’s strength in the Kenyan mobile market has increased significantly over the past 5 years to 80% last year from 57% in 2002. At the time of the launch of its popular “M-Pesa” phone-based money transfer service 11 months ago, Safaricom had 5.8 million subscribers, compared with about 9.5 million now.

Allowing East Africans to directly take part in this IPO is seen as a major step in the intergration of the regional capital markets. Investors from the region, outside of Kenya, will have to open an account with the local Central Depository System Corporation (CDSC) at their local broker in order to participate in the IPO. However, the editorial of the Kenyan daily The Nation was less enthusiastic, questioning “Why can’t these foreign citizens buy shares at the market rate?” It appears old mindsets will die-hard and its going to take time to convince some pundits that capital raising should transcend our so-called “boundaries”.


Lately there has been contradictory media statements on whether the ongoing violance in Kenya would benefit or harm her neighbouring economies.

However, most pundits agree that in the short-term, Kenya’s neighbours have the opportunity to rake in economic benefits from the Kenyan upheavals. The extent of this gain certainly depends on the duration of the crisis — it could prove substantial if the situation does not return to normal soon. Kenya’s economy is known for its resilience and will most likely bounce back fast to its pre-election levels if situation is contained soon. Early last month, Kenya’s Finance Minister Amos Kimunya was quoted as saying that the “post-election violence may cost the economy up to $1 billion but it could be recovered within a year”. A month later, this statement still holds water.

Uganda’s Finance Minister, Dr. Ezra Suruma, also expressed caution, saying “Uganda’s growth projections are within reach if the disruption is contained. But if the situation worsens, that would raise a question of the impact it would have on the economy.” Uganda’s economy was expected to grow at 6.9% this year. In both Tanzania and Uganda, production chains have been interrupted due to unavailability of raw materials, packaging materials and other inputs in the production processes of goods. This has underscored the importance of Kenya as a regional economic powerhouse. 

The short-term gains to Kenya’s neighbours would also depend on how fast they remove drawbacks that restrict their ability to take full advantage of the growing opportunities. For instance, it is reported that Dar es Salaam port is “unable to cope with the sudden demand for services” and it “needs to perfect its clearance system” in order to make the port of Mombasa irrelevant. Also, the Tanzania Ports Authority and the Tanzania Railways need to improve very fast the handling of cargo destined to landlocked countries .

Delays at Mombasa port led to diversions to Tanzanian ports as alternative routes to the landlocked countries of Rwanda, Burundi, Uganda and eastern DR Congo. According to Kenya Transportation Association (KTA), transportation movement in Kenya has gone down “to less than 50%” and its taking longer to deliver goods to the Great Lakes region. Nairobi’s “Business Daily” reported this week that “The illegal roadblocks set up by mobs in the Rift Valley and Western Kenya…had affected the turnaround times and significantly increased operational costs….the number of trucks crossing from Kenya to Kampala had gone down to less than 200 vehicles from 745 vehicles that crossed there daily…”

Two weeks ago, a section of the Kenya-Uganda railway was vandalized, suspending shipment of fuel and cargo to Uganda, its primary gateway. The repairs were expected to take at least one week to complete.

A major drop in tourist arrivals in Kenya has also been reported due to violence and travel advisories issued by western countries, and there are fears of wide reaching hotel closures and industry job layoffs. One tour operator reported up to 85 percent loses in clients for the year because of cancellations, with Kenyan guests opting instead for a Tanzania safari, Uganda safari or even Zanzibar where they can still enjoy other East Africa’s superb attractions.

In the midst of all the bad news from Kenya, Rwanda went ahead and launched their first stock exchange market this week, called the Rwanda Over-The-Counter Market (ROTCM). In other good news, Rwanda and Tanzania finalized plans to commence the construction of rail link extending central railway line from Isaka in western Tanzania to Kigali (expected to be completed by year 2013). Skipping Kenya, George W. Bush is also expected to arrive in the region next week to promote his AIDS initiatives, Millennium Challenge Corporation activities as well as foreign direct investments.

east africa rail links

Despite an 18% decline in FDI investments last year compared to the year before, Tanzania once again led her East African neighbours by attracting more foreign direct investments, mostly due to investment for expansion in the mining industry.

 According to UNCTAD’s “World Investment Report” which came out last week, Tanzania’s FDI stood at $377 million in 2006 (down from $448 million realized in year 2005). Uganda trailed at $307m, Burundi attracted $290m, Kenya raked in only $51m while Rwanda managed $15m.

As a sub-region, East Africa saw an increase in FDI from $1 billion in 2005 to $2 billion in 2006. However, this sub-region still ranks lowest compared to other African subregions in attracting FDI.

Tanzania ranked 4th out of 10 major recipients of FDI among African LDCs. Sudan led the list, followed by Equatorial Guinea, Chad, Tanzania, Ethiopia, Zambia, Uganda, Burundi, Madagascar and Mali. Overall (including non LDCs), the report cited top 10 African recipients of FDI (in descending order) as Egypt, Nigeria, Sudan, Tunisia, Morocco, Algeria, Libya, Guinea, Chad and Ghana.

According to the report, the FDI amounts to Africa doubled in 2 years – from $17 billion in 2004 to $36 billion in 2006. The increase is driven by investors seeking new mining locations in response to increasing global demand and rise in commodity prices. However, Africa’s share in global FDI fell to 2.7% in 2006 from 3.1% the year before. FDI outflows also rose from $2 billion in 2005 to $8 billion in 2006.

What are your thoughts about the concentration of FDI that largely goes into mining sector in Africa? Do you think Tanzania and other African countries can successfully leverage this mining and energy boom and translate it into growth in other economic sectors?

Recently, there has been intense media reports (mostly coming out of Kenyan media and bloggers) pressuring Tanzanian government to ditch SADC (Southern Africa Development Community) in favor of EAC (East African Community).

Tanzania is also being pressured to rejoin COMESA (Common Market for Eastern and Southern Africa) after they pulled out in 2000 to avoid what it termed as duplication of efforts that consequently led to high membership costs. Recently, some industrialists and traders in Tanzania were also reported as advocating for the country’s return to COMESA. 

Observing few responses from Tanzanians to such pressures, I engaged in a friendly and healthy debate with a Kenyan blogger from Business in Focus in an attempt to outline Tanzania’s position (my views are strictly personal). The Kenyan blogger, going by the name “branded”, had posted a stinging article claiming that Tanzania’s negative public opinion against fast-tracking East Africa Federation was “diminishing chances of regional cooperation”. He made further incendiary accusations, claiming that “having strong ties with SADC makes TZ unlikely to represent the interests of the EAC region” and went on blame Tanzania for pretty much everything under the sun when it comes to regional cooperation issues.

The discussion with the blogger started under this link and later continued here as well.

What is your take? Do you think Tanzania should quit SADC and rejoin COMESA?

This year, Kenya replaced Tanzania in the list of Top 10 reformers out of 178 global economies, according to the recently released World Bank’s ‘Doing Business 2008’ report. African countries that featured in this year’s “Top 10 Reformers 2006/07” survey were Egypt (1), Ghana (3) and Kenya (8). Last year (2005/06),  Tanzania ranked number 10 in the list, while Ghana, the only other African country in last year’s survey, stood at 9. Therefore, not only did Ghana remain in the list, it also improved her status significantly to 3rd position this year. 

It is easier to start a business in Rwanda compared to her East African neighbours. For instance, there are 9 procedures and takes 16 days to set up business in Rwanda while in Tanzania there are 12 procedures and takes up to 29 days to do the same.  In the “Starting a Business” category,  Rwanda scored 63, Tanzania 95 (up 6 places from last year’s 101 position), Kenya scored 112, Uganda 114 and Burundi 124. 

Tanzania still remains a notable reformer in Africa. She significantly cut the cost of starting a business in the past year, making her and Mauritania two of the cheapest places to register a business in Africa.

In East Africa, it is easier to do business in Kenya (72), compared to Uganda (118), Tanzania (130), Rwanda (150) and Burundi (174).   

Click here for complete economic rankings of “Doing Business 2008” report. Click here for information on notable reformers this year.

What are your thoughts on Kenya’s impressive showing this year as a top 10 reformer?