Eco­nomic trends in East Africa draw in­ter­na­tional in­vestors

Finweek English Edition - - IN BRIEF - BY LAMEEZ OMAR­JEE

Low oil prices and Kenya’s in­creas­ing eco­nomic ac­tiv­ity and st rong global mar­ket per­for­mance is drawing the i nter­est of i nternational i nvestors to­wards East Africa.

Gy­ongi King, chief i nvest­ment off icer at Caveo Fund So­lu­tions, has vis­ited the re­gion over f ive years and has made ob­ser va­tions across t he bank­ing, tele­coms and power sec­tors. Be­ing “on the ground” gives in­vestors i nsight to make bet­ter i nvest­ment de­ci­sions, says King. “There’s lots of op­por­tu­nity.”

De­spite the pos­i­tive per­for­mance of Kenya’s eq­uity mar­kets, there are risks. This i ncludes se­cu­rit y (Al-Shabab at­tacks have height­ened ten­sions), cheap i mports (par­tic­u­larly i n t he ce­ment, ca­bling and ma­te­ri­als sec­tor due to the lack of price com­pe­ti­tion) and drought im­pact­ing the agri­cul­ture sec­tor (half of the Kenyan pop­u­la­tion works in agri­cul­ture; the poor rain­fall will im­pact food prices and se­cu­rity).

Count r i e s i n t he r e g i on a r e in­te­grated thanks to trade agree­ments, with the re­sult­ing tax benefits mak­ing it eas­ier for cap­i­tal to f low across bor­ders. There are op­por­tu­ni­ties in the bank­ing sec­tor, and ce­ment com­pa­nies are also well po­si­tioned for dis­tri­bu­tion. Ru­ral ar­eas are be­ing ur­banised as a re­sult of tech­nol­ogy. There is con­sumer growth and in­creas­ing eff iciency in mar­kets.

KING NOTES FOUR MA­JOR TRENDS IN THE RE­GION:

FOR­MALISE BANK­ING) Banks are us­ing tech­nol­ogy to draw peo­ple into the for­mal bank­ing sec­tor, which has scope for ex­pan­sion. Mo­bile phone net­work op­er­a­tors like Sa­fari­com have de­vel­oped mo­bile money.

Economies are still cash driven. “M-Pesa is three times the vol­ume of [cus­tomers with] credit and debit cards in Kenya. It is much bet­ter known and used than tra­di­tional bank­ing meth­ods,” says King. “Peo­ple are not nec­es­sar­ily keen on tra­di­tional bank­ing. They want things that are more easy, con­ve­nient, and eas­ily ac­ces­si­ble.”

Sa fa r icom con­ducts va r ious trans­ac­tions and col­lects data on peo­ple’s mo­bile money his­to­ries. In this way, mo­bile money ser­vice providers can keep track of cus­tomers that the tra­di­tional bank­ing sec­tor does not have ac­cess to. How­ever, t here are se­cu­rit y is­sues when it comes to mo­bile bank­ing. A small f i l m can be placed on top of a Sa­fari­com SIM card, cre­at­ing a dou­ble SIM for a phone. This al­lows con­sumers to use the air­time rates of a cheaper com­peti­tor. Such dual SIMs com­pro­mise the se­cu­rity mea­sures put in place by Sa­fari­com and in­for­ma­tion of trans­ac­tions can be copied onto the f ilm or sec­ond SIM. Sa­fari­com is rais­ing the mat­ter in court.

2.

POWER: PROB­LEMS DIF­FER ACROSS THE RE­GION Power is an is­sue for de­vel­op­ing mar­kets, but coun­tries have de­vel­oped unique so­lu­tions.

In Kenya, dif­fer­ent in­de­pen­dent Buoyed by fall­ing oil prices, Kenya’s growth is pro­jected to rise from 5.4% in 2014 to 6%-7% over the next three years (2015-2017), mak­ing it one of the fastest-grow­ing economies in Sub-Sa­ha­ran Africa, ac­cord­ing to the lat­est (KEU) pub­lished by the World Bank.

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