In the final article in our series on China’s growing investment across Africa, Vanessa Ip explores East Africa for the latest developments from Ethiopia, Kenya, Madagascar, Mauritius, Mozambique, Tanzania and Uganda
East Africa comprises of some of Africa’s most buoyant economies. Ernst and Young predicts, in its 2017 report, Connectivity Redefined, that Kenya, Tanzania, Uganda and Ethiopia will all grow at an annual rate of more than 6% for the next 10 years. The “Big Four” accountancy firm also expects that foreign direct investment (FDI) into these hub economies will continue to climb, with the majority of investors gravitating towards large and more diversified economies.
David Thompson, director and regional practice head of corporate and commercial at Cliffe Dekker Hofmeyr in Cape Town, South Africa, says that East Africa will be the first to benefit from the Belt and Road initiative in Africa. “In particular, countries such as Djibouti, Egypt, Kenya and Tanzania stand to gain huge surges of investment in infrastructure and energy,” he says.
Ethiopia. In a 2017 report by McKinsey & Company, Ethiopia is described as one of China’s “robust partners”, encompassing the highest level of strategic engagement between China and an African economy. It was reported by the China-Africa Research Initiative at Johns Hopkins University’s School of Advanced International Studies that Ethiopia received US$10.7 billion in loans from China from 2010 to 2015.
This heightened level of engagement and investment, says Kidist Abayneh, a partner at Kidist and Associates Law Office in Addis Ababa, is more than welcomed by Ethiopia and will provide huge employment opportunities for the country, particularly in manufacturing and construction.
“China’s Belt and Road strategy is welcomed by Ethiopia,” she says. “It’s known that the new initiative will also link China’s southern coast with East Africa. Though it seems that the implementation of this strategy [is not progressing] in Ethiopia, the increasing number of Chinese investors in the country and their huge [levels of investment in the construction and manufacturing industries] shows the acceptance of the strategy by the Ethiopian government, which continues to encourage Chinese investors to invest in the country.”
In Abayneh’s experience, the major frustrations complained of by foreign investors in the country include the strict nature of the labour law (especially on terminations), the rigorous and unclear nature of the tax system, lengthy procedures involving revenue and customs authorities, difficulties in obtaining foreign currencies due to shortages, and lengthy court procedures. Abayneh hopes that by continuing to lobby government bodies, and by working closely with the Ethiopian Investment Commission, some of these issues can be resolved.
Kenya. This is one of the largest and fastest growing economies in East and Central Africa, making it an attractive hub for FDI, specifically in the areas of agriculture, manufacturing and mining.
John Miles, managing director of JMiles & Co in Nairobi, considers construction to be the most popular industry for Chinese investment in Kenya in both the private and public sectors. Chinese businesses have invested heavily in construction, the upgrading of the country’s transportation network, property development and industrial parks. Miles adds that investment opportunities in trade, agriculture and energy are also gaining popularity.
In May 2014, the Kenyan Government signed a US$3.6 billion contract with the China Road and Bridge Corporation for the construction of the Standard Gauge Railway line. Nigel Shaw, a partner at Kaplan & Stratton Advocates in Nairobi, advises that this infrastructure project has probably been the largest of the Belt and Road initiative in the region. The railway line, which became functional in June 2017, has reportedly created more than 27,000 jobs. Kenya has also been upgrading its port in Mombasa and investing in its roads, which is expected to help increase economic productivity.
Practitioners expect to see policy and regulatory developments this year that will support the Kenyan President Uhuru Kenyatta’s “Big Four” agenda, creating further opportunities for foreign investment. “The newly elected government in Kenya has highlighted four areas in which it will devote its efforts in 2018 to 2022,” says Akash Devani, a partner at Anjarwalla & Khanna in Mombasa.
“The four areas are manufacturing, affordable housing, healthcare and food security. The specific goals include building 500,000 low-cost houses, universal healthcare, a 10-fold exports increase, irrigation of 1.2 million acres of land, and millions of new jobs.”
While the future seems to hold many opportunities for foreign investors in Kenya, Miles says they will inevitably face various challenges “depending on the legal entity they want to use for business, and the investment sector, because of the sector-specific laws”. Some non-sector-specific legal and regulatory challenges that investors usually face include lengthy processes of set-up and incorporation, extensive licence and permit requirements, and restrictions on ownership.