Development of the Business

Environment in East Africa

World Markets Event

Finland

Frank Matsaert, TradeMark East Africa 21st August 2014

Unleashing the East African

Lion

World Markets Event Finland

21st August 2014

OR

The Good News

Growth is Good

East African economies growing at 5-8% 5/10 fastest growing cities will be in East Africa Income growth accelerating – emergence of growing

middle class Labour cost inflation in China beginning to attract

investment – e.g. socks in Rwanda Growth is balanced & not just extractives Extractives offer windfall gain for investment & value

addition

Opportunities Expanding

Regional market opportunities high – consumer base in

EAC of 150m, wider markets 300m Regional Integration reducing challenges to trading across

borders & larger Free Trade Area from Cape to Cairo (Tripartite) emerging

Extractives discoveries provide new momentum for growth Trade Growth is projected to increase by six times to 2030 Incremental improvements to investment climates Governments recognise need to invest in trade

infrastructure & energy as part of a competitiveness strategy

EAC Growth Corridors

Northern Corridor

Highway

Rail

Central Corridor

Highway Rail

Transit Points

Sea Ports

Border Post

Overlays

Economic Density Map

Large Growth in Trade Projected

Source: Corridor Diagnostic Study

21,50

35,26

89,58

18,28

30,33

77,04

20,21

31,74

77,93

-

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

90,00

100,00

2009 2015 2030

Tons

- M

illio

ns

Northern Corridor traffic

NC traffic through port of Mombasa

NC traffic by road

Political Will increasing

10 lane Highway? Six Lane Highway?

Big infrastructure investments

10 lane Highway? Six Lane Highway?

Challenges

Region as a % of Global GDP

Not all the Challenges • Demographics & skills in labour markets • Complex and burdensome red tape – increases

potential for corruption • 3rd quartile investment climate rankings with the

exception of Rwanda – unpredictability deters investment

• Low levels of competitiveness in a variety of goods, high in commodities – need for value addition

• Infrastructure & energy deficits & high costs • Shallow supply chains - most businesses are small and

informal • Barriers to growing the regional market (only 18%

trade) increase trade costs

Infrastructure Deficit

Trade Barriers - Border Delays

High Transport & Trade Costs

16 Source: Doing Business in Africa 2014

Finland 2014 $ 625 – Import – 7 days $615 - Export – 9 days

0

2000

4000

6000

8000

10000

12000

14000

Mombasa Port/Mombasa CFS

Channel

Nairobi Kampala Kigali Bujumbura

Cos

t $

Costs for an average Bujumbura bound container

Bribes

Distance-Based Costs

Fixed Costs

Time Based Costs

1%

49%

23%

Transport Cost Components

54%

46%

50%

47%

2%

46%

33%

19%

2%

46%

23%

2%

47%

26%

2%

Source: Corridor Diagnostic Study

Increased Trade

Increased physical market access

Increased business competitiveness

Enhanced trade environment

Increased Trade competitiveness in East Africa

Ports

Expected Results by 2016

10% increase in the total value of exports from the EAC region

25% increase in intra-regional exports when compared to total exports in the region

15% reduction in average time to import or export a container from Mombasa or Dar es Salaam to Burundi or Rwanda

30% decrease in the average time a truck takes to cross selected borders

Value of benefits $ 17 billion - $34 return for every $1 invested

Risks

Possible Bear Traps • Need for institutional reform resilience – reforms must

continue and adapt – requires deeper institutions

• Dutch Disease – need to avoid macro-effects & over-reliance on extractives income

• Political commitment to reform needs to be sustained, some power needs to be ceded regionally

• Asymmetric benefits need to be addressed – inequality, landlocked countries, youth unemployment

• Security & civil unrest – Kenya & South Sudan

(Reference) Doing business in Africa 2011

Thank you

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