Why Kenyan Banks Report 75% Profit Growth in Tanzania Operations

I. INTRODUCTION

East African economies are experiencing a period of significant change and growth, driven by increasing foreign investment, regional integration efforts, and domestic economic reforms. This newsletter examines key developments across the region, with a focus on business trends, policy changes, and their potential impact on the business environment.

The East African Community (EAC) continues to play a central role in shaping regional economic policy, with a renewed focus on increasing intra-regional trade and creating a more integrated market. However, the success of these initiatives depends on effective implementation and equitable distribution of benefits across member states.

Individual countries are pursuing diverse strategies to attract investment and stimulate economic growth. These range from Tanzania's focus on manufacturing and infrastructure to Ethiopia's financial sector reforms. The following updates present opportunities for investors. But they also come with risks, including currency fluctuations and regulatory changes.

II. TREND OF THE WEEK

The EAC has set its sights on industrial growth. And as a result, manufacturing industries are set for major expansion. It currently contributes 9.7% to the region's gross domestic product and employs 456,000 people. But more can be done in the next decade.

By 2032, manufacturing could become a cornerstone of East Africa's economy by:

● Increasing its GDP contribution to 25%

● Creating jobs for 2.3 million people

● Increasing manufactured value added per capita from USD 50 to USD 258

That growth is expected to have ripple effects across the economy. For example, it could raise regional GDP to USD 238.9 billion and per capita income to USD 1,300 by 2032.

To achieve these goals, EAC policymakers are focusing on:

1. Harmonizing regulations for SMEs

2. Enhancing productivity and management skills

3. Strengthening regional value chains

4. Expanding exports and import substitution

In the short term, the region is targeting 10-20% annual growth in industrial production and a 10-15% yearly increase in manufacturing value added.

III. TOP HEADLINES

TANZANIA

1. An Increase in Investment Fuels Economic Optimism

Tanzania registered 409 investment projects worth $3.09 billion in the first half of 2024, with the manufacturing sector leading at $1.42 billion across 196 projects. This surge in investment signals substantial potential for industrial expansion in Tanzania. The transportation sector also saw significant growth, with 68 projects valued at $570.55 million, highlighting Tanzania's potential as a regional logistics hub.

To support this growth, the government is investing in infrastructure development. A new electrification project aims to connect 3,060 hamlets across 25 regions to the national grid within 24 months. This USD 130 million project is crucial for expanding electricity access and supporting economic activities.

However, investors should be aware of potential challenges. The government's plan to delist all wards and villages within the Ngorongoro Conservation Area has drawn criticism, raising concerns about land tenure security and potential disruptions to business operations.

KENYA

2. Financial Sector Shows Resilience

Despite recent economic headwinds, Kenya's financial sector demonstrates remarkable resilience. Kenyan banks have reported a 75% profit growth in their Tanzanian operations, indicating their ability to thrive in regional markets. This success highlights the potential for Kenyan businesses to expand across East Africa and capitalize on regional growth opportunities.

The government's Hustler Fund initiative has mobilized significant savings, with KCB and Family Bank holding 3 billion Kenyan shillings. This showcases the government's commitment to empowering small businesses and fostering entrepreneurship.

In the technology sector, a new platform now allows Kenyan traders to make payments for Chinese goods using Alipay. This development streamlines cross-border transactions and opens up new opportunities for Kenyan businesses in the Chinese market.

However, the country faces ongoing economic challenges. The recent withdrawal of the Finance Bill 2024 due to public protests highlights the delicate balance the government must maintain between fiscal policies and public sentiment. The Finance Minister is now considering alternative measures for a tax amendment bill, aiming to find revenue sources that are more acceptable to the public.

UGANDA

3. Strategic Moves to Enhance Energy Security

Uganda is taking strategic steps to strengthen its energy security. The country has begun utilizing the port of Dar es Salaam in Tanzania for oil transportation, diversifying its oil import routes, and mitigating supply chain risks. This move is crucial for a nation experiencing rising energy demands fueled by economic growth.

In addition to oil imports, Uganda is advancing its domestic energy production capabilities. The upcoming completion of the 600 MW Karuma Hydro Power Dam will substantially boost the country's electricity generation capacity. This project, alongside plans to expand the transmission network by 13,000 km over the next two decades, presents significant investment opportunities in power generation, transmission infrastructure, and ancillary services.

These developments in the energy sector align with global sustainability trends and could attract investors seeking environmentally responsible projects. They also position Uganda to potentially become a regional energy hub, supporting economic growth across East Africa.

RWANDA

4. Trade Expansion and Digital Finance Drive Economic Growth

Rwanda is aiming to leverage regional trade deals to expand its economic influence. The nation has officially expressed interest in joining the existing trade agreement between Kenya and the European Union. This strategic move would provide Rwandan businesses with enhanced market access for their exports within the EU, fostering economic growth.

This ambition aligns with discussions within the broader East African Community (EAC) to strengthen intra-EAC trade and investment. The EAC Secretary General has called for a "different drumbeat" to unlock the region's trade potential and achieve the goal of "Buy East African, Build East Africa." Rwanda appears to be aligning its economic strategy with this vision for regional integration.

Beyond traditional trade, Rwanda is also embracing technological innovation as a catalyst for economic progress. The country is actively promoting digital financial solutions to expand financial inclusion and empower women in business. For example, Wegagen Bank, a prominent financial institution, recently launched its online lending service, Efoyta, in collaboration with Qena Software Design and Development. This innovative platform aims to streamline the lending process, making it more accessible to businesses and individuals alike. This focus on financial technology aligns with global trends and positions Rwanda as a potential leader in digital finance within the EAC.

While Rwanda is taking steps to modernize its financial sector, it also faces challenges common to many developing economies. There are concerns about the concentration of loans in the hands of a limited number of large borrowers, which could stifle competition and limit access to finance for small businesses. This service gap presents an opportunity for investors to capitalize. Additionally, the upcoming liberalization of Rwanda's banking sector to foreign competition is expected to introduce new challenges for local banks, requiring them to adapt and innovate to remain competitive.

BURUNDI

5. Diplomatic Efforts and the Mpox Situation in Africa

On August 23, 2024, Burundi's Minister of Foreign Affairs, Albert Shingiro, met with his Japanese counterpart, Kamikawa Yoko, in Japan. The meeting took place during Shingiro's visit for the Tokyo International Conference on African Development (TICAD) Ministerial Meeting. During the meeting, Japan reaffirmed its commitment to supporting Burundi's development and expressed a desire to strengthen bilateral relations. The two countries specifically discussed cooperation in the areas of mineral resources and regional connectivity. This meeting highlights Burundi's efforts to cultivate strategic partnerships and attract foreign investment.

Burundi, along with other African nations, faces growing concern over the escalating mpox outbreak in the region. The World Health Organization (WHO) has reported mpox cases in 13 African countries and suspected cases in three more.

The Democratic Republic of the Congo (DRC), a neighbor of Burundi, is experiencing a significant outbreak, with mpox spreading to a majority of the country. In response to the outbreak's severity, both the WHO and the Africa CDC have declared mpox a public health emergency. The organizations are actively engaging with vaccine manufacturers to secure doses for affected countries. Negotiations are exploring various options, including technology transfer and the establishment of local vaccine production facilities in Africa.

Japan has stepped forward and pledged to donate doses of its LC16m8 mpox vaccine to the DRC. This donation offers a potential avenue for Burundi and other affected countries to explore vaccine assistance and strengthen their response to the mpox outbreak.

ETHIOPIA

6. Economic Reforms Target Foreign Investment

Ethiopia is implementing a series of economic reforms aimed at attracting foreign investment and stimulating growth. A key development is the liberalization of the country's exchange rate. On July 29, 2024, Ethiopia transitioned to a floating exchange rate system, allowing commercial banks to negotiate birr-to-dollar conversions directly with clients. While this move aims to address the gap between official and parallel market rates, it has resulted in considerable depreciation of the birr.

In line with International Monetary Fund (IMF) recommendations, Ethiopia plans to open its banking sector to foreign competition in September 2024. This move is expected to attract foreign investment and boost competition but presents challenges for Ethiopia's 32 domestic banks. Smaller banks, especially those struggling to meet capital requirements, may face difficulties competing with foreign lenders.

To complement these financial sector reforms, Ethiopia is also implementing tax reforms to increase government revenue. A new Value Added Tax (VAT) regulation includes a higher threshold for businesses subject to VAT, increasing it from one million birr to two million birr in annual sales.

While these reforms offer opportunities for foreign investors, Ethiopia still faces some economic challenges, including high inflation and a lack of financial inclusion for many citizens. Addressing these issues will be crucial for the country to fully benefit from its ongoing economic reforms and achieve sustainable growth.

IV. OPINION OF THE WEEK

“In Tanzania, trust is at a premium. If you can intermediate trust between transacting parties, there are a lot of opportunities to grow your company.”

Firas Ahmad, Group CEO at AzamPay and Sarafu

V. UPCOMING EVENTS

1. Tanzania Real Estate Market Webinar 2024

What:

An exclusive webinar unpacking the latest trends, challenges, and opportunities in Tanzania's dynamic real estate market.

Where:

Online via Zoom, LinkedIn, YouTube, and Instagram Live. A link will be sent to all registered participants.

When:

September 5, 2024, 04:00 to 05:00 PM (East Africa Time)

Why Attend:

● Gain data-driven insights on key market trends

● Understand recent regulatory changes impacting the sector

● Explore high-potential market segments and emerging opportunities

● Learn critical factors to consider before investing

● Q&A session with industry experts

● Receive a FREE copy of our "Tanzania Real Estate Market Overview 2024"

Who Should Attend:

● Real estate investors and developers

● Property managers and real estate agents

● Financial institutions involved in real estate lending

● Government officials and policymakers

● Urban planners and architects

● Anyone interested in Tanzania's property market

Registration:

Registration is free but spaces are limited

Click here to secure your spot: https://shikanagroup.lpages.co/real-estate-webinar/

Deadline to register: September 4, 2024

Special Offer:

Webinar attendees will receive an exclusive 50% discount on our comprehensive "Tanzania State of Real Estate Report 2024" (Regular price: $999, Special price for attendees: $499)

Don't miss this opportunity to position yourself at the forefront of Tanzania's evolving property sector. Register now! (https://shikanagroup.lpages.co/real-estate-webinar/)

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2. Nairobi Summit 2024

What: A two-day conference focusing on Climate Tech in Africa, featuring over 20 selected tech startups from across Africa and 7 innovative startups from Korea.

Where:

Shamba Events, Nairobi, Kenya

When:

1st to 4th September, 2024

Why Attend:

● Engage with 30+ top speakers, moderators, and panelists

● Gain insights into Africa's Climatetech and investment ecosystem

● Explore innovations in renewable energy, sustainable agriculture, smart water management, and climate-resilient infrastructure

● Network with experts in tech, business, finance, venture capital, private equity, media, and policy

Who Should Attend:

● Tech entrepreneurs and startup founders

● Investors and venture capitalists

● Climate tech professionals

● Policymakers and government officials

● Sustainability experts

● Anyone interested in African tech and climate solutions

Registration: Visit https://www.africarena.com/the-tour/nairobi-summit-2024 to register.

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VI. CONCLUSION

East Africa provides immense opportunities for economic growth and investment. Key areas to watch include:

1. Manufacturing and infrastructure development

2. Financial technology advancements

3. Energy sector growth

4. Digital finance and regional trade integration

5. Public health challenges and responses

6. Economic reforms and their impact on financial sectors

Balancing economic growth with social and environmental considerations is crucial for long-term stability and prosperity. This involves addressing concerns about potential negative consequences of economic policies, such as rising living costs, job displacement, and environmental damage.

Transparency, communication, and community engagement are essential for building trust and ensuring equitable economic development. Open dialogue about development plans, response efforts to challenges, and resource allocation can help mitigate concerns and ensure effective policy implementation.

VII. RESOURCES

For more detailed information on the topics covered in this newsletter, please refer to the following resources:

1. Tanzania Records $3 Billion Worth of Investment in First Half of 2024 - Africa.com

2. https://www.africanews.com/2024/08/19/kenya-to-revive-scrapped-tax-plans-risking-unrest/

3. The Democratic Republic of the Congo’s (DRC) Hydrocarbons Minister Joins Angola Oil & Gas (AOG) 2024 Amid Exploration Drive - Africa.com

4. Finance Ministry consults business community on draft VAT regulation - Addis Standard

5. Industrialization & SME Development