8 EAC Investment Opportunities to Watch This Week

I. INTRODUCTION

Today, like every Monday, we explore the active economic landscape of East Africa. From strategic partnerships and foreign investment to the growing role of diaspora remittances, nations across the region are pursuing strategies for growth and development.

Key takeaways include:

• There is a growing momentum behind the African Continental Free Trade Agreement (AfCFTA), which has power to reshape intra-African commerce.
• The diaspora plays an invaluable role in supporting their home economies.
• Expanding business networks and attracting investors necessitate cross-border collaboration.

Please read on for in-depth commentary and analysis of the most important developments across East Africa from March 17th to 23rd.

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II. TREND OF THE WEEK

Let us explore the promising patterns shaping East African economies and opening opportunities for investors. Below is a snapshot.

• The EAC is set to outpace all other African regions, with projected growth rates of 5.1% in 2023 and 5.8% in 2024.
• Tourism and a range of associated activities propel the services sector. However, it remains a cornerstone of growth, contributing nearly half of East Africa's GDP expansion in 2022.
• EAC is home to an estimated 302.2 million citizens, of whom over 30% are urban.
• The region's urban population is projected to double by 2050.
• East Africa met only 11% of its estimated USD 67.2 billion annual climate financing needs in 2020.
• At least 50% of climate financing will need to come from the private sector.

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III. TOP HEADLINES

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TANZANIA

1. Growth Trajectory Continues

Tanzania's economy is positioned for sustained expansion. Real GDP growth is projected to reach 6.3%, and inflation is expected to ease to 4.0% this year. The EAC region, on the other hand, is forecast to grow by 5.48%.

These optimistic viewpoints were highlighted during the recent CEO Roundtable Meeting on East African Integration and Economic Outlook 2024, organized by the East African Business Council (EABC), the Tanzania Private Sector Association (TPSF), and the Switzerland-Tanzania Chamber of Commerce (STCC). Key drivers of growth include the recovery of the tourism sector and continued public investment in infrastructure projects.

During the roundtable, EABC Executive Director John Bosco Kalisa encouraged Tanzania’s agriculture sector to transition into value-based processing. This focus aligns with Tanzania's long-term development goals, which you will find in Section V. It also gives investors the chance to participate in transforming the country’s predominant economic activity. However, other sectors driving Tanzania's growth include manufacturing and financial services.

Amne Suedi , our MD and Chairperson of the STCC, emphasized the need to eliminate non-tariff barriers and access financing. Why? These are major factors in facilitating foreign and domestic investment.

2. Logistics Sector Sees Strategic Shift

The recent agreement between Bravo Group and the Tanzania-Zambia Railway Authority (TAZARA) is an important development for foreign investors interested in East and Southern Africa’s logistics landscape. This open access agreement enables private companies to operate their own cargo trains on the TAZARA railway lines. Hence, it fosters competition and enhances the efficiency of regional trade routes.

Bravo Group, a Tanzanian freight forwarding company, chaired by Ms. Angelina Ngalula has reportedly invested USD 35 million to launch this initiative and plans to initially deploy two trains capable of transporting 1,000 tonnes of cargo each between Tanzania, Zambia, and the Democratic Republic of the Congo (DRC). These trains will primarily transport minerals and agricultural exports, offering a more cost-effective and environmentally sustainable alternative to traditional road haulage.

According to a national newspaper, Bravo will haul at least 8,000 tonnes per month across four journeys. Currently, TAZARA is the sole operator of passenger, freight, block and mixed train services between Dar es Salaam and Kapiri Mposhi, Zambia, despite its single-track railway's capacity to handle 5 million tonnes of freight per year across 1,860 km.

This partnership aligns with the government's commitment to positioning the country as a regional trade hub. By opening railway infrastructure to private operators, Tanzania aims to improve the ease of doing business, attract increased foreign investment, and stimulate economic growth across the region.

Bravo Group's success could spur demand for additional locomotives and rail cars. Companies specializing in rolling stock manufacturing or maintenance services could find lucrative opportunities in this expanding market. In addition, the increased efficiency of the TAZARA network will drive demand for modern logistics management and warehousing solutions near major ports and rail hubs. Supporting sectors like rail security, cargo handling equipment, and technology solutions for track or traffic management are likely to experience growth alongside increased railway utilization.

We encourage investors to closely monitor the implementation of this public-private partnership (PPP) for further clarity on the regulatory frameworks in Tanzania's rail transportation industry. Bravo's agreement, for example, comes after winning TAZARA’s tender in 2021. To date, the deal still requires approval from the Land and Transport Regulatory Authority (LATRA) before operations can begin. There may also be specific incentives offered to domestic companies that could differ from those provided to foreigners looking to participate in similar projects. With the upcoming standard-gauge railway (SGR) development, understanding these regulatory nuances will be crucial for any investor seeking long-term success in the sector.

For more information on the regulatory nuances and the investment opportunities, reach out to us here: https://calendly.com/shikanagroup/30min?month=2024-03 .

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SOUTH SUDAN

3. Temporary Disruption in Oil Exports Creates Long-Term Investment Potential

The ongoing conflict in South Sudan has undoubtedly led to temporary challenges for oil exports. Issues like pipeline access, supply shortages, and infrastructure damage are currently impacting the smooth flow of oil. However, it's important to view these disruptions within the broader context of South Sudan's resource potential, the steps being taken to address the situation, and the quantitative data available.

South Sudan possesses significant proven oil reserves, estimated at 5 billion barrels as of 2022. This underscores the inherent value of the sector and its long-term potential for recovery. While the current force majeure and export delays are a result of a specific conflict, it's worth noting that South Sudan's oil production capacity remains largely intact. Prior to the current disruptions, the country's output averaged 150,000 barrels per day (bpd).

The challenges highlight areas ripe for future investment. Companies specializing in pipeline repair, security solutions, and advanced oil transport technology could find significant opportunities as Sudan rebuilds and enhances its oil export infrastructure post-conflict.

In addition, the temporary disruption in supply is likely to create pent-up demand once exports resume. Investors who position themselves now could benefit from favorable market conditions in the post-conflict recovery phase. It is also worth noting that South Sudan's oil sector has weathered serious disruptions in the past. Even with the recent decline to 140,000 bpd, the country's production remains higher than during its previous civil war period (1983–2005 and 2013-2015). This proven resilience suggests that, with the right investments and a stable environment, the oil industry can rebound strongly.

Beyond necessitating a cautious approach, the current conflict (which began in 2016) presents a chance to research long-term investment strategies focused on infrastructure development and technology solutions within the oil sector. The post-conflict period could offer lucrative opportunities for those who are prepared.

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KENYA

4. KQ's Growth Strategy Includes New Destinations, Increased Frequencies, and Strategic Partnerships

The new codeshare agreement between Kenya Airways (KQ) and Virgin Atlantic (VS) indicates a strategic expansion for both airlines and presents interesting possibilities for investors in East Africa's aviation sector.

It offers several key benefits, including enhanced connectivity. Virgin Atlantic can now connect passengers to KQ's extensive network, reaching 42 destinations worldwide, with 35 of those being within Africa. This opens up new markets for both airlines and increases the attractiveness of Kenya as a travel and investment hub. In addition, members of KQ's Asante Rewards and Virgin Atlantic's Flying Club can now enjoy reciprocal benefits, such as mileage accrual and redemption. This enhanced customer loyalty could lead to increased passenger volume and revenue for both airlines, considering KQ currently has over 1 million members in its rewards program.

The agreement, coupled with KQ's network expansion, highlights the growth potential of Kenya's aviation market and Africa as a whole. It also reflects the recovery in global air travel demand following the challenges posed by the COVID-19 pandemic.

Investors should consider opportunities for supporting infrastructure. Why? The increased passenger flow could drive demand for improved airports, ground handling services, and hospitality around major hubs like Nairobi. Companies providing aerospace tech, catering services, and aircraft maintenance could also find new business opportunities as airlines expand their operations. Finally, improved connectivity between Africa and the Caribbean (where VS has a foothold) can stimulate tourism growth, thus leading to investment opportunities in hotels, resorts, and related industries.

So, why should you care?

The National Treasury of Kenya has engaged a consultant to identify potential equity investors for KQ, with a target closing date of June 2024. The government, which owns a 48.9% stake in the airline, is also exploring a privatization model that would consolidate KQ with other entities within a holding company structure. A decision on the best path forward is expected by April 2024. And in order to reduce the financial burden on the government, the Treasury has also taken over USD 439 million in loans previously guaranteed for KQ.

Despite ongoing financial challenges, Kenya Airways’ management reports operational profitability for the first time in six years. This suggests a potential for long-term viability with the right investment backing.

The search for a strategic backer, alongside potential privatization initiatives, could present opportunities for investors seeking exposure to Kenya's aviation market. Developments surrounding Kenya Airways' restructuring warrant close monitoring, as they could impact the investment landscape.

KQ's network expansion and operational improvements offer positive signs. But investors should carefully consider these factors alongside the government's evolving restructuring policies.

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BURUNDI

5. AfDB Tackles Food Security with Targeted Agriculture Funding

The African Development Bank (AfDB) has pledged USD 80 million to strengthen Burundi's agricultural sector. This investment aims to significantly increase productivity and support agro-processing initiatives. Its ultimate goal is to enhance both domestic food availability and export potential.

AfDB's commitment to the country extends to additional development projects. In February, it approved USD 158 million in financing for a railway line connecting Burundi, Tanzania, and the DRC. Recent discussions also included support for Burundi's sovereign debt management strategies.

The bank’s substantial investments in Burundi's agricultural sector and infrastructure highlight the country's growth potential. As a result, investors interested in East Africa's agricultural development should consider the following areas of opportunity:

• Agribusiness: Increased agricultural output and support for agro-processing could create demand for value-added food products, packaging, and related services.
• Infrastructure: The planned railway connection to regional trade hubs could streamline agricultural imports and exports. Companies specializing in storage facilities, transportation, and logistics solutions may find a growing market.
• Agritech: Investments aimed at increasing productivity will likely drive demand for modern farming equipment, irrigation systems, and farm management software.

If you are interested in investment opportunities in agriculture, reach out to us here: https://calendly.com/shikanagroup/30min?month=2024-03 .

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UGANDA

6. Overseas Ugandans Send More Money Back Home, Supporting Households and Investment

In Uganda, diaspora remittances grew by 13.4% from USD 1.25 billion in January 2023 to $1.42 billion in January 2024, according to its central bank. The growth underscores the important contribution of Ugandans abroad to their home country's economy. Sources of these cross-border payments include the Middle East, Europe, the Americas, and other African nations.

This development also aligns with the World Bank's observation that remittances remain a key source of external finance for low- and middle-income (LMIC) countries worldwide. For example, the value of diaspora money transfers to East Africa was USD 5.4 billion in 2017. But it rose to USD 9.3 billion in 2022, reflecting an 11.5% compound annual growth rate (CAGR).

In comparison, the global remittances market expanded by 3% in 2023, while Sub-Saharan Africa (SSA) saw a 1.9% increase. However, diaspora funds to Tanzania fell by 68%, from USD 980 million in 2022 to USD 310 million in 2023. Inflows from Kenyans living abroad totaled USD 4.19 billion, a 4% rise over the previous year's USD 4.028 billion.

Diaspora remittances serve as a critical source of external finance for Uganda, accounting for approximately 3% of the country's GDP. These funds contribute to poverty alleviation, improved access to healthcare, and quality education. A portion of the funds are also directed towards stimulating economic activity, often in construction and land acquisition.

The steady inflow creates potential opportunities for companies offering savings, investment, and insurance products tailored to the needs of diaspora communities. Increased household purchasing power could also drive demand for a wide range of products and services. For example, Uganda’s trend of remittance-funded property development suggests a strong real estate market that foreign investors can tap in.

However, Uganda’s high remittance sending costs (of 11.3% per transaction) remain a major hurdle. Why? That’s almost double the global average (6.25%). Startups like Banana Pay are seeking to reduce the cost of sending money to the country by leveraging technology to offer efficient and secure remittance solutions. Initiatives like this are crucial for maximizing the social and economic benefits of cross-border payments.

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DRC

7. Gold Giant Seeks Further Expansion

Barrick, through the Kibali gold mine, is driving economic development in the Democratic Republic of the Congo (DRC). On March 20, the corporation’s CEO, Mark Bristow, expressed a strong commitment to expanding gold and copper exploration and development in DRC.

Why? Kibali is Africa's largest gold operation. And it has consistently delivered strong production performances. In 2023 alone, the mine yielded 9.7 metric tons (MT) of gold.

With its new expansion plans, Barrick demonstrates a commitment to reserve replenishment, ensuring the mine's continued productivity for years to come. As of December 2023, gold reserves sat at 14 MT (representing 42.5 tons of gold). Thus making Kibali a viable investment target well into the future.

However, Barrick's investment extends beyond mining. Over USD 5 billion has been channeled into the DRC economy, with more than half spent on partnerships with local contractors and suppliers. This has promoted skill development. And spurred the rise of a thriving commercial hub in the northeastern DRC. In addition, Kibali's planned 16 megawatt (MW) solar plant with battery storage, scheduled for 2025, will boost renewable energy reliance to 85%. This commitment to sustainability aligns with the growing emphasis on responsible investing.

As with any investment, potential risks and challenges merit careful consideration. These may include fluctuations in commodity prices, such as copper, which can impact profitability.

Regardless, the Kibali mine serves as a model for sustainable and community-sensitive investment in Africa's resource-rich regions. Investors seeking exposure to gold extraction and the DRC's economy should carefully assess the opportunities presented by Barrick's successful operations.

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RWANDA

8. IMF Supports Growth Trajectory

The International Monetary Fund (IMF) has reaffirmed its support for Rwanda's economic development. Following a mission to Kigali, IMF staff agreed to allocate approximately USD 165.5 million in funding to the country through the Resilience and Sustainability Facility (RSF) and the Standby Credit Facility (SCF).

This decision signals confidence in the country’s financial management and its path for sustained growth. The IMF commended Rwanda's commitment to integrating climate considerations into economic planning. It says progress on initiatives like climate budget tagging and disaster risk management is encouraging.

In 2023, strength in the services, construction, and agricultural sectors drove Rwanda's economy to grow by 8.2%. Proactive monetary policy and favorable food prices also supported the positive trend of inflation decelerating to 4.9% in February 2024.

The outlook remains positive, but the IMF noted potential downside risks. These include further geopolitical disruptions, spikes in global energy and food prices, and a slowdown in trading partners' growth. It emphasized the need for carefully calibrated fiscal policy to cushion the impacts of recent floods while simultaneously reducing budget deficits and debt accumulation over the medium term.

The IMF also observed that monetary policy should focus on anchoring inflation. Continued exchange rate flexibility is crucial for external adjustment and improving the effectiveness of money supply control mechanisms.

Rwanda's positive economic outlook, combined with its focus on climate resilience, creates opportunities for investors in verticals such as green technology and infrastructure. Why? Projects in renewable energy, sustainable agriculture, and climate-smart infrastructure align with the country’s development goals. In addition, a growing services sector and government support for manufacturing offer potential for expansion.

We encourage investors to carefully assess the potential risks highlighted by the IMF, including external market fluctuations and climate-related uncertainties in agriculture and other weather-sensitive sectors. Proactive measures such as diversification, risk insurance, and partnerships with local entities can mitigate these risks. Foreigners should also monitor fiscal reforms and expenditure rationalization efforts, as these could impact the operating environment.

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V. UPCOMING EVENTS

1. On March 26, the Tanzania Private Sector Foundation (TPSF), in collaboration with the President's Office - Planning and Investment (PoPI), will host a high-level forum at Johari Rotana from 8:00 a.m. to 2:00 p.m. You can RSVP here .

The event aims to gather insights for the preparation of the Tanzania Development Vision (TDV) 2050. It offers a unique opportunity for investors and business leaders to directly influence the country's long-term strategic direction. Our Managing Director, Amne Suedi, is honored to be part of the core technical team shaping TDV 2050. She brings valuable perspectives and expertise from Shikana Group to the vision’s drafting process.

As of 2022, Tanzania had achieved 66% of the targets outlined in the TDV 2025. Hence, the new long-term plan will build on this foundation. Vision 2050 aims to transform Tanzania into a middle-income country with a focus on inclusive growth and sustainable development.

2. Join the Tanzania Startup Association (TSA) on March 27th, from 10:00 a.m. - 11:45a.m., for the soft launch of its highly anticipated report for 2023.

Why attend? You could gain an early look at critical data to inform your investment strategy. Attendance would also allow you to network with key players in the country’s tech ecosystem. In addition, you may contribute to a discussion on the future of doing business in Tanzania. Apply to participate: here.

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VI. EXPERT OPINION

"Recent developments across the African continent show that the idea of ‘Africa Rising’ remains true and alive.

With trade liberalisation through the Africa Continental Free Trade Area Agreement (AfCFTA), a fast growing population, and increased technology penetration, the opportunities in Africa’s key markets continue to expand.

What many see as challenges in Africa, are, in a manner of speaking, Africa’s greatest strength for investments and growth."

By Ijeoma Uju, Partner at TEMPLARS

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VII. CONCLUSION

While challenges persist, the stories we've covered this week point to a promising future for East Africa. As governments and businesses continue to implement innovative strategies, foster collaboration, and embrace the opportunities presented by initiatives like the AfCFTA, the region is well-positioned to achieve sustainable economic growth. We will continue to monitor these developments in the weeks to come.

Until then, let's remember that the path to prosperity often requires a combination of bold action, strategic investment, and a commitment to leveraging regional strengths.

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VIII. RESOURCES

• TAZARA in rolling stock pact with a Tanzanian logistics firm
• Sudan declares force majeure on South Sudan's oil Exports due to war
• Kenya Airways boosts its network with increased frequencies and additional destinations?
• African Development Bank Commits $80 Million to Support Burundi's Agricultural Sector - 21.03.2024, Sputnik Africa l
• Uganda diaspora inflows grows 13.4pc - The East African ?
• TZS 2.5 Trillion to TZS 791 Billion: Remittance Drop Signals Alert for Tanzania's Economy ?
• Kenyan Diaspora Remittances Soar to Record USD 4.19 Billion in 2023 ?
• Barrick Hunts New Gold and Copper Prospects in DRC From Kibali Base
• Rwanda set for new $165 million IMF funding - The New Times ??

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THE END