East African integration: Risk and opportunities facing investors

19 April 2017

Regional integration in East Africa is gathering pace, as states continue to strengthen economic, political and trade co-operation. A series of ambitious initiatives aimed at developing transnational transport and power links will open up new consumer markets and natural resources, ensuring that East Africa is a growth outperformer in the next decade.

Annual average growth in East Africa is forecasted at 5.6%, above the anticipated 5.0% in Central Africa, 4.7% in West Africa and 4.4% in Southern Africa. Integration will also provide sizeable infrastructure investment opportunities for international investors in the medium term, as well as supporting growth in East African extractives, logistics, manufacturing and services sectors beyond the 10 year outlook. 

Political integration has been ongoing for some time in East Africa. The East African Community (EAC), which incorporates Tanzania, Kenya, Uganda, Rwanda, South Sudan and Burundi, was formed in 1999 and has transformed the bloc into a well-integrated regional market. Political co-operation in East Africa will increasingly be complemented by regional power and infrastructure projects, which incorporate non-EAC states such as Uganda, Democratic Republic of Congo and Ethiopia. These programmes will make the East African construction sector a global bright spot.

One such initiative is the Northern Corridor, a multimodal transport project that aims to link Uganda, Rwanda and Burundi with Kenya’s Port of Mombasa and provide further links to eastern Democratic Republic of Congo, southern South Sudan and northern Tanzania. The Northern Corridor also incorporates an oil pipeline between Nairobi and western Kenya, to allow landlocked East African states to access fuel imports. Further infrastructure initiatives include the Lamu Port and Lamu-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor, which brings together seven infrastructure projects linking Kenya, South Sudan and Ethiopia.

Integration of regional power markets under the East African Power Pool (EAPP) will also bring investor opportunities in transmission line projects, as participating countries bolster electricity trading. Interconnection projects now form over 30% of all grid infrastructure projects in EAPP countries.

Despite these opportunities, foreign investors will also face a number of risks. Project delays are common as locals lodge environmental complaints and the commissioning of transnational projects can often be slow. Sovereign credit risks are also elevated, as a number of governments incur elevated fiscal deficits to fund projects, in anticipation that they will generate revenues in other sectors.East Africa Diagram

The weak security situation in Burundi, South Sudan and Somalia will pose death and injury risks to personnel, deterring significant investment. Moreover, porous borders elevate the risk of conflict spill over into neighbouring states, weighing on the regional operating environment. For example, Somali terrorist group al-Shabaab has carried out attacks in Kenya.

In this special issue of Risk Outlook, we consider the risks and opportunities facing investors in key East African countries: Kenya, Ethiopia, Tanzania, Uganda, Rwanda, South Sudan and Democratic Republic of Congo. We also provide an overview of long-term investment opportunities generated by integration, and an insight into insurer appetite for Kenyan risks. 

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For further information, please contact:

MATT STRONG
Managing Director 
T 312.218.6033

CORINA MONAGHAN
Senior Vice President
T 212.510.1892