Kenya: focused on the long term

Perched on a podium, under the glare of the auditorium’s spotlights, Kenya's president Uhuru Kenyatta seemed comfortable and upbeat as he hosted the World Economic Forum’s session on Kenya and was grilled about his recent election victory. Even when talk turned to his impending trial at the International Criminal Court – the ICC has implicated Mr Kenyatta as one of the perpetrators of Kenya’s 2007 post-election violence – his response remained light-hearted.

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“That white elephant is in the Hague,” he said, with a touch of humour. “The world will focus on my ability to respect the rule of law… and I have every intention to clear my family’s name.”

In an interview with fDi Magazine, Mr Kenyatta appeared confident in his ability to uphold Kenya’s international image as east Africa’s foremost investment destination. “Kenya’s economic prospects are quite bright, and the opportunities are there,” he said.

Although the spectre of the ICC case looms large – Mr Kenyatta’s trial is set to start in July 2013 – the peaceful outcome of the presidential elections in early March caused Kenya’s stock market to rally. By mid-March, shares in the Nairobi Securities Exchange had increased by more than 50% from the previous year. “We have just gone through a peaceful election and, as we witnessed in the stock exchange, the reaction to it was positive,” said Mr Kenyatta.

Kenya is a key market for investors seeking to tap into east Africa’s markets. Professional services firm Ernst & Young ranked the country as the eighth most attractive destination in Africa for FDI since 2003. Between 2003 and 2013, Ernst & Young estimates that Kenya has accounted for 4.4% of FDI into Africa.

While the country's GDP growth is expected to increase from 5.2% in 2012 to 5.5% in 2013, according to the African Development Bank (AfDB), the country's plethora of structural weaknesses are said to constrain investors. With a current account deficit of 12.4%, which has been described by the World Bank as “among the worst in the world”, Mr Kenyatta conceded that bottlenecks in Kenya’s business environment are a top priority.

“We really need to look at some of the procurement and company laws, and we must simplify the doing-business environment in Kenya,” he said. “We wish to remove the red tape that surrounds [entrepreneurs’] abilities to start up new businesses.”

For Mr Kenyatta, one part of the solution lies in seeking targeted investments from foreign multinationals. Pointing to the country’s reputation as east Africa’s ‘silicon Savannah’ for information and communications technology, Mr Kenyatta maintained that Kenya offers a large, skilled and youthful population for prospective ICT and software companies. For him, the discovery of oil deposits announced in March 2012 will provide the government with an additional line of income to fund more infrastructure projects.

“Kenya is seeking FDI in all areas,” said Mr Kenyatta. “It is now making considerable finds, especially in the natural resources sector. That is an area the country wants to continue with, in order [to fund] infrastructural developments. The ICT sector has great potential, given the skills and potential of the country's youth. Kenya is definitely going to go through a number of challenges as it sets up its government... but I believe that the long-term prospects are great.”

Mauritius: keen to diversify

Known the world over for its palm tree-fringed beaches and turquoise lagoons, Mauritius has developed a reputation in the global travel market for its high-end hotel resorts, luxury cruise tours and world-class golf clubs. Its popularity, particularly among European holidaymakers, has allowed it to attract investments from European hospitality companies, including Germany-based Thomas Cook Group and France’s Club Mediterranee. Indeed, greenfield investment monitor fDi Markets found that a large proportion of investment in the country is derived from western Europe. 

While quick to praise Mauritius’ tourism industry, Xavier-Luc Duval, the country's vice-prime minister and minister of finance and economic development, maintained that its economic development has been diversified. “Mauritius has a very successful tourism industry,” he said. “We are also service-oriented and Mauritius has a very educated population, therefore we have also moved into financial services. We have a lot of bankers, lawyers and we have more qualified accountants per capita than the UK. I’m an accountant myself – it’s a sort of national trend.”

Although Mauritius’ GDP growth has been fairly moderate in recent years – rising from 4% in 2012 to 4.2% in 2013 – according to the AfDB, the country has been among the top economic performers in Africa. Ranked by the World Bank as the 19th best location globally for ease of doing business, Mauritius leads its African peers in terms of business environment, with the second best African performer, South Africa, ranked a distant 39th. This makes the country a popular choice among foreign investors in Africa.

Ranked by Ernst & Young as the eighth largest growth market for greenfield FDI projects in Africa between 2011 and 2012, Mr Duval maintained that investor interest in the country has been high, due to its developed infrastructure and its favourable taxation policies.

“Mauritius offers excellent human and physical infrastructure,” he said. “We have a new airport that is due to be opened in a few months’ time, and we are investing heavily into our ports. We have an excellent taxation system, which offers many advantages. One thing to note is that although Africa offers high returns on investments, with these investments there are also higher risks. People wish to mitigate those risks by using a financial sector such as [that of] Mauritius, as they are looking for a base which is transparent.”

It is not all good news for Mauritius, however. The country’s economic growth, which is already less than Africa's 5% average, could decline further in the face of dwindling tourism revenues. With earnings from the sector expected to drop by 12.4% this year, on account of visitors from recession-stricken Europe reducing their holiday expenditure, the country’s economic trajectory appears unsteady.

Also, while the government has moved to develop its financial services offerings, Mauritians’ expertise is largely centred on serving businesses channelling their investments through Mauritius towards India. As a result, Mr Duval conceded that the country’s abilities to serve as a financial services hub for Africa is circumscribed.

“Financial services were very concentrated on India before, but we are now diversifying into providing investment services into Africa,” said Mr Duval. “This takes time and we must always do better because others are catching up. Despite the difficult economic conditions, Mauritius had a record year in terms of attracting FDI. [We attracted] approximately $400m in investments, and this illustrates that we continue to generate investor confidence in the country.”

Uganda: two-pronged growth

Landlocked Uganda has never been a country to shy away from international controversy. In 2011, just a year after oil deposits were found in the country by UK-based Heritage Oil, the country was taken to the London Court of International Arbitration by the company to contest a steep tax levied on the sale of its oil blocks to the English oil major, Tullow Oil.

Although in April 2013, the London Court ruled in favour of the Ugandan government, which will impose a $434m capital gains tax on Heritage Oil’s sale, which was worth $1.5bn, Uganda has received criticism for its tough treatment of foreign companies. However, the country’s prime minister, Amama Mbabazi, is adamant that as well as giving the government a critical lifeline to run the country, such taxation policies are already in place in many other oil-producing countries. 

“We need to have taxes – how would Uganda run if we did not have an income?” he said. “We are taking deliberate steps to avoid the oil curse, as we are determined to use this oil for the benefit of future generations.”

Mr Mbabazi added that although Uganda discovered its oil earlier than Ghana, the country has been slower to open up to international markets as its government has been tightening its regulatory framework. “We have taken a long time – we found oil before Ghana, but Ghana is already exporting oil,” said Mr Mbabazi. “We have now passed the laws relating to exploration, and we have one remaining bill [to pass], relating to the management of the oil revenues. Once we do that, we will open up to exploration, licensing and refining. By 2016, we will have started refining.”

The International Monetary Fund has predicted that exploration activity in the oil sector will enable Uganda’s GDP to grow from 4.9% this year, to 6% in 2014. 

Mr Mbabazi said that he believes GDP growth will also be led by Uganda’s agricultural sector, which has the ability to attract large value-added investments. “We are seeking FDI into agro-processing, as we have a lot of arable land that is not used very efficiently, since we lack the technical capacity,” he said. The country's economic output is currently dominated by agriculture, which employs more than 80% of the population. The government is keen to support FDI into the sector by engaging in public sector partnerships.

The recent oil finds may dominate investor interest in the country but Mr Mbabazi maintained that agriculture must not be overlooked, as it could become a future driver of growth. “We want more infrastructure investments and more value to be added in agriculture,” he said. “We have enough food to be a food exporter and we need to add value to what we produce, in order for the [people] in the villages to realise a higher income. We are on the rise – the profitability of investments in Africa is the highest, as the return on equity stands at 30% to 45%. Therefore we are on the move.”