EAC Investment Roundup [June 16-22]

I. INTRODUCTION

Welcome to Shikana Group's weekly newsletter on doing business in East Africa. We are glad to provide insights on Tanzania, Kenya, Uganda, Rwanda, Burundi, the DR Congo, Somalia, Ethiopia, and South Sudan to our growing readership of over 2,100 professionals and investors.

In this free edition, we bring you the latest developments from six countries. We offer actionable intelligence for those interested in the region's investment climate. Our content consistently reaches over 12,500 monthly impressions across LinkedIn and email, reflecting the high demand for quality information on East African markets.

We're also excited to share details about the upcoming Africa Business Day 2024 conference in Switzerland, where I will be moderating a panel on cleantech innovation and sustainable solutions for the continent.

We invite you to read on and encourage you to share this newsletter with colleagues who might benefit from these insights.

Thank you for your continued engagement.

Amne Suedi,

Managing Director, Shikana Investment and Advisory Sarl.

II. TREND OF THE WEEK

Global foreign direct investment (FDI) fell 12% in 2022 to USD 1.3 trillion due to various worldwide emergencies. That is according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report (WIR) 2023.

However, Africa's business climate showed signs of resilience and potential. While FDI flows to the continent decreased by 44% year-on-year (YoY) to reach USD 45 billion, other indicators depict a more complex picture:

• Developing countries, including many in Africa, saw a 4% increase in FDI, reaching USD 916 billion. That made up 70% of global FDI inflows, with growth concentrated in a few large emerging economies.
• European investors hold the largest FDI stock in Africa, with the United Kingdom (USD 60 billion), France (USD 54 billion), and the Netherlands (USD 54 billion) leading the way.
• International project finance deals in Africa fell 47% YoY to USD 74 billion. But the number of projects rose 15% to 157. Decreases in value were recorded in renewables, mining, and power.
• Nigeria experienced negative inflows of USD 187 million due to equity divestments. Notwithstanding, announced greenfield projects in the country grew by 24% YoY.

These trends show that global crises have affected immediate FDI flows, but investor interest in Africa remains strong. The increase in ventures built from scratch, despite value decreases, indicates a continental shift towards smaller, potentially more diversified investments.?

II. TOP HEADLINES

TANZANIA

1. Economic Climate Diversifies with Strategic Partnerships and Global Outreach

Last week, Tanzania demonstrated considerable progress in attracting investments and expanding business opportunities across multiple sectors.

1.1 Renewable Energy Gains

British International Investment (BII) signed a USD 15 million agreement with Rift Valley Energy (RVE), a Tanzanian renewable energy platform. The partnership value could even increase to USD 25 million. This move addresses Tanzania's low electrification rate, particularly in rural areas where only 24% have access to electricity.

Key impacts:

• RVE aims to provide energy to 170,000 people annually.
• 4,000 businesses and households to be connected to the grid for the first time.
• Potential creation of 1,800 jobs in local industries.

The BII-RVE development aligns with Tanzania's goal to produce 6,000 MW (megawatts) of renewables by 2025. How? By utilizing untapped sources including solar, wind, geothermal, and biomass. Currently, renewable energy accounts for only 4.9% of generation capacity, excluding large hydroelectric projects. That indicates significant growth potential in this sector.

1.2 EU-Tanzania Financial Cooperation Expansion

The European Union (EU) held an information session titled "Grow with the European Union Finance" in Tanzania. It focused on financial opportunities for local businesses under the Global Gateway strategy. This initiative builds on discussions from the Tanzania-EU Business Forum in February 2023.

Highlights:

• New EUR 4 million grant contract signed between EU and Tanzania’s Financial Sector Deepening Trust (FSDT) for inclusive finance for SMEs operated by women and youth.
• European Investment Bank (EIB) provided EUR 270 million in new investments in 2023, making Tanzania the largest recipient of EIB support in Sub-Saharan Africa
• The European Fund for Sustainable Development Plus (EFSD+) aims to mobilize up to EUR 135 billion in public and private financing worldwide

This expanded cooperation opens new avenues for Tanzanian businesses to access financing and scale up operations across various sectors.

1.3 Strategic Real Estate Investment

Tanzania launched the construction of a 22-story twin tower project in Nairobi, Kenya. It is an innovative approach to foreign property investment and diplomatic infrastructure.

Key details:

• Project aims to provide embassy offices and generate foreign exchange earnings.
• Part of a broader strategy to utilize government-owned plots and buildings abroad.
• Potential to transform USD 29 billion annual diplomatic rental expenses into USD 36 billion in earnings.

This initiative reflects Tanzania's growing economic footprint in the region and presents opportunities in construction and real estate activity. The sectors contributed 8.3% to GDP in Q3 2022, with the 2023 market value estimated at USD 9.5 billion.

KENYA

2. Nation Witnesses Strategic Shifts in Finance and Agriculture

Last week, Kenya's financial and agricultural activity were high. Notable developments reflect the country's evolving business environment. We have explained the situation below.

2.1 An Acquisition?

Africa Mega Agriculture Centre (AMAC) Limited announced plans to acquire 84.42% of Kenya Orchards Limited (KOL), a move that could reshape the country’s agriculture market. Why? KOL manufactures and sells bottled and canned produce (fruits and vegetables) for domestic consumption in Kenya. Key details of the deal:

• AMAC will acquire up to 10.86 million ordinary shares from major KOL shareholders
• The transaction aims to diversify KOL's business line and improve its financial performance.
• AMAC does not intend to delist KOL from the Nairobi Securities Exchange (NSE).

This acquisition indicates growing interest in Kenya's agribusiness sector. It could lead to increased innovation and efficiency in food processing and distribution.

2.2 BII Exits I&M Group

British International Investment (BII) sold its 10.1% stake in I&M Group PLC to AfricInvest. It marks one of the most important secondary transactions in East Africa recently. Why?:

• I&M Group has expanded its presence across Kenya, Mauritius, Tanzania, Rwanda, and Uganda.
• Since BII's investment in 2016, I&M's loan book has grown from KES 135 billion to KES 310 billion.
• Customer base increased from 100,000 to over 500,000.

This transaction emphasizes the attractiveness of East African banks to international investors, and the financial sector's expansion capacity.

2.3 Government Retracts Tax Hike Plans

In response to public pressure, the Kenyan government amended the controversial Finance Bill. How?:

• Removed proposed 16% VAT on bread, transportation of sugar, financial services, and foreign exchange (forex) transactions.
• Scrapped the 2.5% motor vehicle tax.

These changes aim to alleviate the financial burden on citizens and businesses, thus potentially stimulating economic activity.

2.4 Protests and Civil Unrest

Despite the amendments, protests occurred near the parliament building. Key outcomes:

• Police used tear gas to disperse protesters
• 210 people were reportedly arrested, including journalists and rights observers

The protests highlight ongoing tensions between government policy and public sentiment, which could impact investor confidence.

UGANDA

3. Tech and Finance Sectors Show Promise

Last week, Uganda's technology and financial sectors demonstrated major developments. They indicate an expanding digital economy nationwide. Why?

3.1 MTN Achieved 20% Public Float Requirement

MTN Uganda successfully completed its first public offering, meeting regulatory requirements and expanding local ownership. Key details:

• Offer was 2.3 times oversubscribed (excluding incentive shares).
• Sold 20% of its shares to the public, meeting a requirement set by the Uganda Securities Exchange (USE) and Uganda Communications Commission (UCC).
• Successful applicants received their allotted shares in their securities central depository accounts.
• MTN will process refunds for unsuccessful or partially fulfilled applications by June 27, 2024.

This development indicates strong investor interest in Uganda's telecommunications sector. Moreover, it could potentially increase liquidity in the local stock market.

3.2 CARE Partners with a Fintech Startup

CARE, an international organization combating poverty and hunger, announced a strategic partnership and investment in Ensibuuko, a Uganda-based financial technology company. Key details:

• Ensibuuko will acquire CARE's Chomoka application, which is a digital solution for savings groups.
• Ensibuuko currently supports 7,500 digital savings groups in Uganda and Malawi.
• In 2022, Ensibuuko acquired a microfinance services license from the Bank of Uganda.

Key impacts:

• Potential to expand financial and digital inclusion for savings groups and underserved communities.
• Ensibuuko aims to deliver digital products to millions of savings group customers.
• Partnership could improve features and services for existing Chomoka users.

The CARE-Ensibuuko collaboration emphasizes the growing importance of digital financial services (DFS) in Uganda, particularly for rural and underserved communities (84% of the nation’s population in 2023).

RWANDA

4. Telecom Infrastructure Expands

Rwanda's commitment to digital infrastructure development has the potential to drive economic growth. We have analyzed two recent developments below.

4.1 Admaius Invests in TRES?

Admaius Capital Partners, a pan-African private equity (PE) firm, made a majority equity investment in TRES Infrastructure Ltd., Rwanda's only licensed local tower owner and operator. Key details:

• Transaction will drive the scale-up of telecommunication towers across Rwanda.
• Aligns with Rwanda's goal to achieve over 95% geographical coverage in coming years.
• Aims to improve network affordability and connectivity in rural and urban areas.

Key impacts:

• Supports expansion of 4G and eventual 5G network rollout.
• TRES' infrastructure serves major operators like MTN and Airtel, and KT Rwanda Networks Ltd.
• Expected to increase affordability and accessibility of telecom services nationwide.

4.2 Strong Market Demand

Rwanda's telecom tower market shows promising characteristics, such as:

• Consistent demand due to 2.3% annual population growth between 2012 and 2022.
• A 20.9% increase in the number of active mobile-cellular phone subscriptions from 11 million in December 2022 to 13.3 million in April 2024.

• Growing trend of multi-SIM adoption.

4.3 Kigali International Financial Centre (KIFC) Involvement

On another note, the investment showcases the KIFC's role in attracting international capital. How? Admaius is a KIFC member and? currently manages over USD 280 million through its Virunga Africa Fund 1. KIFC's strong regulatory framework is cited as a factor in investor confidence.

BURUNDI

5. Economy to Grow Amid Ongoing Challenges

Last week, Burundi's economic landscape displayed cautious optimism. Yet, persistent infrastructure and commodity challenges have tempered that outlook. Let's examine these key trends.

5.1 2024/25 Budget Increase

Burundi's parliament approved a 15.9% increase in the national budget for the 2024/25 fiscal year (FY). Key details:?

• Total budget: 4.4 trillion Burundi francs (USD 1.5 billion).
• Gross domestic product (GDP) growth projected at 5.4%, up from 4.2% in FY 2023/24.
• Budget increase is largely due to unfreezing of civil servants' salary bonuses.

Key factors contributing to growth outlook:

• Government investment programs.
• Improved cooperation with development partners.
• Favorable rainfall expectations.
• Gradual resumption of mining investment.
• Fiscal, monetary, and foreign exchange policy reforms.

5.2 Ongoing Infrastructure and Commodity Challenges

Despite positive budget news, Burundi presents investment opportunities arising from existing challenges. These include:

• Persistent electricity shortages, with daily outages lasting over two hours.
• Sporadic fuel shortages, impacting businesses and public services.
• Recent border closures with Rwanda, potentially affecting trade.

These issues are affecting businesses across all sectors, from hairdressers to radio stations. They could slow the country’s economic recovery. So, targeted interventions could prove lucrative for investors.

5.3 International Relations and Development Assistance

Burundi is slowly regaining international favor. Here is why:

• The World Bank (WB) announced a new grant of up to $40 million in January to help avert acute commodity shortages.
• The EU and US have eased sanctions.
• New budget will be funded equally from internal and external revenues

ETHIOPIA

6. Government Attracts Foreign Capital

6.1 Banking Industry Liberalization

Ethiopia has taken major steps towards opening its economy to external investment, particularly in the banking sub-sector, while also strengthening ties with China in key industries.

The Ethiopian cabinet approved a bill allowing foreign banks to enter the country's financial sector. Key details:

• International banks can establish partially or fully owned subsidiaries, open branches, or acquire shares in existing banks.
• Foreign shareholding in banks limited to 40% of total shares, with direct strategic investor stakes capped at 30%.
• Draft law requires foreign bank subsidiaries to include local Ethiopian non-shareholders on their boards.

Key impacts:

• Potential to modernize and deepen Ethiopia's financial system, which is composed of 31 local banks.
• Opportunity for foreign investors to enter Africa's second-most populous country.
• May help address long-standing foreign currency shortages.

6.2 China-Ethiopia Economic Cooperation

The "China-Ethiopia Agriculture and Mining Industry Cooperation Fair" held in Addis Ababa indicated growing bilateral economic ties. Key highlights:

• The Fair focuses on collaboration in agriculture and mining sectors.
• 36 Chinese companies participated, exploring investment and trade prospects.
• Event emphasized networking and industry cooperation.

IV. UPCOMING EVENTS

1. Africa Business Day?

What: A Swiss-African Business Circle (SABC) annual event. It is Switzerland's premier platform for businesses operating in or interested in the African market. The day will feature a hybrid format with both in-person and virtual attendance options.

Where: Novartis Campus in Basel, Switzerland.

When: June 27, 2024.

Who Should Attend:

• Swiss companies interested in doing business in Africa.
• Investors seeking insights into large-scale projects and opportunities.
• Government officials and experts interested in sustainable development in Africa.

Why Attend:

• Gain valuable insights into large-scale projects in key sectors like health, agriculture, and infrastructure.
• Connect with CEOs, managing directors, investors, government officials, and representatives from Swiss and African embassies.
• Learn about Swiss-led cleantech innovations and their potential to address sustainability challenges in Africa. Shikana Group's Managing Director, Amne Suedi, will moderate a panel discussion on that topic.

Register: https://www.s-ge.com/en/event/third-party-event/africa-business-day-2024?ct?

2. Global Symposium for Regulators 2024

What: The GSR-24 is a global platform for knowledge exchange on the topic "Regulation for impact" in the telecommunications sector.

Where: Speke Resort and Convention Center, Munyonyo, Kampala, Uganda

When: July 1-4, 2024.

Why Attend:

• Engage in thematic discussions on transformative technologies.
• Network with regulators, policymakers and digital stakeholders worldwide.
• Gain insights on maximizing digital opportunities and addressing regulatory challenges.

Who Should Attend:

• Telecommunications regulators.
• Policymakers.
• Industry executives.
• Digital stakeholders.
• Academics and researchers in the field.

Registration: https://www.itu.int/itu-d/meetings/gsr-24/participation/registration/.?

V. OPINION OF THE WEEK

Only local investments will bring foreign investments. Africans need to look inward, promote intra-African trade, and develop our own financing mechanisms.?

Quick fixes won't work, as things take time. One must be prepared to build from scratch.?

In the end, it is a combination of the right policies, access to financing, and persistence that will get us through.

Insights from recent interviews with Aliko Dangote and AfDB President Akinwumi Adesina.

VI. CONCLUSION

This compilation of updates across the East African Community (EAC) reveals a region ripe with diverse investment opportunities.?

Ethiopia's bold move to liberalize its banking sector, combined with Rwanda's telecom infrastructure expansion, indicates a strong push towards modernization and digital connectivity. Kenya's agribusiness developments and Tanzania's EU partnership under the Global Gateway strategy represent the region's focus on both traditional and technology sectors.

Financial services remain a key area of interest, with Uganda's fintech advancements and Kenya's banking sector transactions demonstrating the sector's dynamism. Meanwhile, Burundi's efforts to re-engage with international partners and increase public spending suggest an improving investment climate, albeit with persistent challenges.

Across the region, we see a common denominator of economic reforms, infrastructure development, and a drive for international engagement. While each country presents unique business conditions, the overall trend points towards a more open and interconnected East African market.

For investors, this environment offers a chance to participate in the region's growth story across multiple sectors. However, as always, thorough due diligence and an understanding of local contexts remain crucial. At Shikana Group, we are here to help you navigate these exciting opportunities and make informed investment decisions tailored to your objectives.

VII. RESOURCES

1. World Investment Report 2023?
2. NSSF set to dazzle skyline with 22-storey twin towers | The Guardian?
3. Kenya Orchards to sell majority stake to investor for Sh210m - Business Daily
4. CARE invests in Ugandan Fintech Ensibuuko to boost Financial Inclusion for Women??
5. FEATURED: Admaius Capital’s equity investment in TRES to scale up telco towers in Rwanda - The New Times?
6. In Burundi, shortages and power cuts slow a return from international isolation?
7. Ethiopia to allow foreigners into banking sector