Ethiopia, Kenya, Tanzania…East Africa’s recovery growth machine

By Jaysim Hanspal, Nicholas Norbrook
Posted on Thursday, 3 February 2022 11:04

Credit: MEAACT PHOTO / STUART PRICE

East Africa has shown resilience through the challenges of the past two years. With its national champions in many sectors and regional integration far ahead of the rest of the continent, both investors and homegrown companies are out to catch the opportunities.

Back in 2019, East Africa housed three of the world’s fastest-­growing economies – Ethiopia, Rwanda and South Sudan. Then two major events upset the regional apple cart. While 2020 will be remembered by many as an annus horribilis, for East Africa the stakes were high.

First, the Covid-19 pandemic, which by 2 April had entirely shut down both local and international flights. Tourism contributes around 17% to export earnings, accounting for around 10% of regional GDP. And then war broke out in Ethiopia, sending shockwaves throughout the region and the country.

So what will the future hold? Let’s take a look at how economies have been adapting to these unfriendly disruptions.

Quick-thinking airlines

“We have emergency response plans as an airline, but sometimes we don’t anticipate this level of disruption”, said Allan Kilavuka, the CEO of Kenya Airlines, speaking at our online Africa CEO Forum event in September. “We stopped flying passengers on the whole, so we needed to increase our capacity for cargo and repurpose some of our planes. We managed to repurpose two of our Dreamliners into cargo planes.”

In Tanzania, leading manufacturer MeTL ploughed on, benefiting from Tanzania’s relative lack of Covid-related closures. “Tanzania didn’t really have a lockdown, so our operations weren’t affected dramatically. Certain sectors like tourism did take a hit, but we didn’t,” MeTL director of marketing Fatema Dewji told the CEO Forum.

Others were less fortunate. Hotels on the Swahili Coast had to lay off staff or shutter, from Tanzania up through Kenya. Small tour operators went out of business. Cancellations piled up at safari and guide businesses.

Hillpark Hotel in Nairobi was one of several to acquire a new clientele as a quarantine centre: “We had to reduce our normal room prices to over 50% discount,” said Joseph Ndunda, the general manager, in research commissioned by the Kenyan government. “All Covid-19 suspects paid uniform charges regardless of the room checked in. Though giving a 50% discount was a huge decision, it helped us to manage employee salaries and operational costs of the hotel.” The hotel also provided meals to local hospital workers.

But the year had not finished its regional shakedown. In November, a vicious, ethnically tinged conflict pitted the Tigray region – home to many of those who were piloting Ethiopian growth – against the federal government. In the prior decade, the World Bank clocked Ethiopia’s economic growth at near 10%. The war will have a huge hit on a country that was becoming a regional economic juggernaut.

Tigray’s knock-on effect

The effects of the war are wide and deep for Ethiopia: Tigray is home to a significant portion of the country’s manufacturing and mining activity, and inflation has doubled the cost of food in the capital, Addis Ababa. They are also being felt throughout East Africa. Djibouti’s finance minister, Ilyas Dawaleh, told reporters that GDP growth had been cut in half, due largely to the slowdown in trade from Ethiopia – Djibouti has become a logistics hub for its landlocked neighbour.

Despite the region’s challenges, East Africa recorded a GDP growth of 0.7% in 2020. The African Development Bank predicts growth of 3% in 2021 and 5.6% in 2022.

The bounce-back is already underway and is perhaps a testament to the region’s digital focus. “We saw a lot more cashless, mobile banking solutions,” says Darshan Chandaria, the group CEO of Chandaria Industries. “Touching money was deemed a hygiene risk across Africa. It’s given us a better idea of risk management and sustainability going forward.”

For Dewji of Tanzania’s MeTL, the pandemic highlighted new opportunities: “In Tanzania, there were traditional forms of marketing, and there were digital, as some people don’t have access to those platforms. However, now things are changing. They do have access to it, and we are taking that into account. We are looking into app development to provide products straight to the consumer, like Amazon.”

Covid has proved that Africa cannot skip manufacturing altogether. It has delivered a big blow to the African economy.

That advance should not be taken for granted, wherever you are on the continent, argued Juliet Anammah, the chair of Jumia Nigeria and group chief sustainability officer. “Some consumers don’t have access to the internet, so can’t participate in the digital economy. Basic literacy and access to the internet are important.”

A recent UN report put Kenya seventh in Africa in terms of technology adoption, and 105th globally. It’s East African peer group trailed far behind: Uganda was ranked 128th, Rwanda 133rd, Tanzania 138th and Burundi 145th.

Notwithstanding the laggards, domestic investors are feeling optimistic, too. A third of Kenyan companies say they are reviving expansion plans. Already, big beasts such as Equity Bank are showing the way, with its purchase of two banks in the Democratic Republic of Congo, helping connect the regional financial capital with resource-rich areas.

Manufacturing the future

This gives hope to those who see East Africa as a future manufacturing hub. Beyond the domestic players, an opportunity is emerging to connect Asian capital and consumers to African producers. Railways, pipelines, ports and regional integration projects are underway.

Policymakers and business leaders say they know what needs to be done to make East Africa the growth engine of Africa. “Covid has proved that Africa cannot skip manufacturing altogether. It has delivered a big blow to the African economy. Our exports declined by 8%, our imports by 9%,” Albert Zeufack, chief Africa economist at the World Bank, told the CEO Forum. “We have seen countries producing personal protective equipment (PPE) and making it clear that manufacturing pharmaceuticals and vaccines are a reality.”

Kenya took the lead in manufacturing PPE, with a coalition of private-sector leaders coordinated by Equity Bank CEO James Mwangi, amongst others. Kenya’s minister of industrialisation, Betty Maina, thinks this needs to be the first step towards a more coordinated push for manufacturing by Africans for Africans: “We have to learn that we can trust our products better, and we don’t have to import a lot of these commodities.”

Rwanda has shown that exporting commodities is just as feasible and that by coordinating private-sector and public support, products with more value-added can be sold to Asian markets. A 2019 deal between Rwanda and Chinese ­e-commerce giant Alibaba has blossomed into a regular trading route. “Thanks to the elimination of intermediaries between Rwandan farmers and Chinese consumers, our farmers can now earn an extra $4 for each package sold,” James Kimonyo, Rwandan ambassador to China, told media at an event to launch Rwandan coffee in China.

“We have seen digital technologies laying the groundwork for future industrialisation,” adds the World Bank’s Zeufack, who also urges the region to target the potential in the green economy. “We need to seize opportunities in the global decarbonisation processes, especially in our cities, where these productive jobs will  be created.”

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