The EAC region has a conducive environment to attract and promote investment. In recent years, there have been concerted efforts by national governments to improve the investment climate in the region.
The Rand Merchant Bank (RMB)’s “Where to Invest in Africa” report that assesses the attractiveness of Fifty-three (53) African countries, in terms of being attractive for investments on the African continent showcases EAC Partner States as being attractive investment destinations.
The RMB attractive index assesses the most appealing investment destination based on four aspects: doing business index; global competitiveness index; corruption perception; and economic freedom index. RMB ranked three of the EAC Partner States (i.e. Kenya, Rwanda and Tanzania) in the top 7 in its 2019 report. Tanzania ranked 7th in both 2018 and 2017, Rwanda ranked 6th from 8th, and Kenya 5th from 6th in 2017. Uganda ranked 14th from 11th in 2017. The various investment reforms undertaken by the Partner States have led to an increase in the attractiveness of the EAC region.
Covering 140 economies, The Global Competiveness Index 4.0 measures national competitiveness–defined as a set of institutions, policies and factors that determine the level of productivity. The Global Competitiveness index 4.0 captures the determinants of long-term growth and provides novel and more nuanced insights on the factors that will grow in significance as the 4IR gathers pace: human capital, innovation, resilience and agility. These qualities are captured through a number of new, critically important concepts (e.g. entrepreneurial culture, companies embracing disruptive ideas, multi stakeholder collaboration, critical thinking, meritocracy, social trust) complementing more traditional components (e.g. ICT and physical infrastructure, macro-economic stability, property rights, years of schooling). Table 3.1. provides Global Competitiveness Index for EAC Partner States that were ranked among the 140.
The Global Competitiveness Index 4.0 2018 Rankings for EAC Partner States
2018
2017
2018
Diff. from 2017
Economy
Rank out of 140
Rank out of 135
Score
Rank
Score
United States
1
1
85.6
-
+0.8
Mauritius
49
49
63.7
-
+0.8
Kenya
93
93
53.7
-
0.4
Rwanda
108
107
50.9
-1
+1.3
Tanzania
116
114
47.2
-2
+0.8
Uganda
117
113
46.8
-4
-0.2
Source: The global competitiveness Report 2018, World Economic Forum
East Africa, is the third largest region in Africa, outpacing West Africa due to its consistent strong growth exceeding 5% GDP growth for all the KURT countries (Kenya, Uganda, Rwanda and Tanzania). As a collective hub, these four countries enjoy an economy worth US$185 billion. Kenya (US$88 billion), Tanzania (US$58 billion), Uganda (US$29 billion) and Rwanda (US$10 billion). The population of these KURT countries is more than 150 million. (Source: FDI Intelligence, EY analysis, 2019).
Further on the ease of Doing Business, the Doing Business Report 2020 ranked Burundi 166th in 2019 from 168th in 2018, Kenya 56th in 2019 from 61st in 2018, Rwanda 38th in 2019 from 29th in 2018, South Sudan 185th which maintained the same ranking as in 2018, Tanzania 141st in 2019 from 144th in 2018 and Uganda 116th in 2019 from 127th in 2018 out of 190 economies and selected cities at the subnational and regional level.
The EAC region has a conducive environment to attract and promote investment. In recent years, there have been concerted efforts by national governments to improve the investment climate in the region.
The World Bank Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.
The EAC legal framework is enabling EAC Partner States to cooperate in the areas of Investment and Industrial Development to harness the investment potential to promote economic growth and development in the region.
In 2007 when M-Pesa came about, financial exclusion was pervasive in Kenya, as was the proliferation of Micro Finance Institutions and Micro-credit savings unions.
A snapshot of views and perceptions, current and old from key people about doing business in the EAC. The old views are still true today, which gives a sign that EAC should be the investment destination of choice.
Mr. Kiprono Kittony
2020, Vice Chairman, World Chamber Federation
"The East African region is amongst the fastest growing regions in the world and is highly diverse. With a young and vibrant population and favourable climatic conditions the single market region under the EAC and the prospect of broader market under AFCFTA, investors should seriously consider the region. Favourable investment incentives are starting to yield fruit as has new renewable energy sources."
Irfhan Virjee
2020, Manager Galax Foods & Beverages Ltd, Arusha, Tanzania
"In the market, the brand is known as Kilimanjaro Fresh, derived from the fact that the milk is sourced from Kilimanjaro Region. The factory produces dairy products that are UHT, yogurt and, as a company, it looks forward to producing more dairy products. Investment in the factory has thus far cost some Tshs 5 billion.
The company is registered with Tanzania Investment Center (TIC), where we receive all the necessary services. Among other things, Kilimanjaro Fresh is grateful for being exempted from import duty and VAT on imported machines. As investors, it has made the cost of machinery more affordable. In addition, to expedite service delivery, TIC serves investors through the One Stop Facilitation Center where officials from various government institutions, departments and authorities assist investors in obtaining permits and licenses to launch their projects within TIC offices.
We are very grateful that through the existing system we have been able to access all the necessary services under one roof without any problems. We are thankful to President Dr. John Pombe Magufuli for promoting industrialization, something that has motivated the company.
This factory is the result of value chain in the agricultural and livestock sector. I and our team are proud of the products produced in our factory because the market exists and continues to grow day by day in the way that people are encouraged to drink milk.
We also thank Tanzania Investment Centre for improving and strengthening service delivery at TIC regional offices and headquarters to assist investors in the country and address their various challenges for the greater good of the nation. I advise other investors who are mulling to start projects in the country to register with TIC because they will be supported from the initial stages of starting the project to the stage of production. By being registered with TIC, we have not had any serious challenges such as disruption of production or falling foul with authorities for flouting investment laws and regulations in the country."
Harodi Shoo
2020, Director of Harsho Group's tripartite subsidiary companies which are Harsho Trading, Harsho Packaging and Harsho Milling which produces pet foods.
"I thank God that in 2012 our dream of launching Harsho Packaging Company was presented to TIC Northern Zone and they forwarded it to the Headquarters where it was deemed feasible. The next step was to apply for a loan from banks to get the capital. The bankers expressed willingness to lend us on the condition that we register with TIC and get an investment certificate. We thank TIC for allowing us to get here and we are proud to see that every day we expand. We thank Hon. President Dr. John Pombe Magufuli for introducing systematic changes and prioritizing investments in the country.
We have indeed greatly benefitted from being registered with TIC especially in the area of experts we have employed in the factory because TIC helps to facilitate access to their work and residence permits, as well as tax exemptions on the machines we import. Importing machinery and being required to pay all taxes is very expensive but under TIC and the established procedure we have been getting tax relief and thus enabling us to fulfill the government’s industrialization agenda. Furthermore, TIC has been our savior in the face of various challenges we encounter with other authorities and has always been a resourceful mediator and encouraging with advice on the need to respect regulatory authorities and abide by the country’s laws and regulations.
We continue to produce sacks for produce and alternative shopping bags, and with the outbreak of COVID-19, we have started producing PPE after being counseled by health experts. I must confess that we will remember the efforts by President Magufuli for centuries, he has shown good intentions which we thought would be impossible to attain but if we get the right people to implement his vision we can reach very far. At times such as this to have someone who wants to know about your challenges and who is also ready and willing to assist you, it is encouraging. I believe that with the new system introduced by the president in very short period of time we will be among investors with large industries in the country. This project employs over 300 people and it is worth TShs 6 billion."
Paul Hanrahan
2019, Globeleq CEO.
"The attractive investment climate combined with strong local community support sets the stage for this important project as well as future investments in Kenya. We are extremely pleased to be making this investment into the Kenyan energy sector."
Richard Quest
2018 English Journalist, CNN International Anchor, and CNN Business Editor at Large
"I have traveled to many countries to report on business news. However, nothing matches the business acumen and readiness for investment that I have observed in Kenya Including the World Bank optimism to a marvelous GDP growth of 6%. As we embark on the maiden DIRECT flight from Nairobi to New York, I must say Kenya is the new business Destination in Africa".
Christine Lagarde
2018, Former Managing Director of IMF and Currently the President of the European Central Bank.
"Kenya has emerged as one of Africa’s ‘frontier economies’, and I am very interested in learning how the country’s leaders and people will build on this success moving forward".
Each Partner State has gazetted Export Processing Zones (EPZ) and Special Economic Zones (SEZ). EPZ and SEZ across the Partner States focus on contributing to building strong export-led economic development through industrialization. EPZ and SEZ provide a number of specific incentives for investors operating within them, which include fiscal and non-fiscal incentives, including corporate tax holidays, duty and VAT exemptions.
Burundi Special Economic Zones
together with its Managing Authority were established in Burundi by a Presidential Decree Law to promote exports, provide an enabling environment and attract local and foreigner direct investments. The Burundi SEZ offers a number of attractive fiscal and non-fiscal incentives including reduction or temporary tax exemption.
Kenya Export Processing Zones
were established in Kenya with an aim of attracting and facilitating export-oriented investments. Kenya’s EPZ provide an attractive and enabling environment as well as a range of fiscal and procedural incentives for such investments. The EPZ is managed by the Export Processing Zones Authority (EPZA), which was established in 1990, by the EPZ Act CAP 517, Laws of Kenya. The Authority’s mandate is to promote and facilitate export oriented investments and to develop an enabling environment for such investments. The EPZ Authority is a State Corporation, under the Ministry of Trade, Industry and Cooperatives. EPZA under the EPZ program offers a range of attractive fiscal, physical and procedural incentives to ensure low cost operations, fast set up and smooth operations for export oriented business.
Rwanda Special Economic Zones:
Rwanda’s SEZ program is designed to address some of the domestic private sector constraints such as availability of industrial and commercial land, availability and the cost of energy, limited transport linkages, market access and reduced bureaucracy and availability of skills. Designated, serviced land is provided for small and large scale industrial development, as well as reliable, quality infrastructure, competitive fiscal and non-fiscal regulations and streamlined administration procedures.
South Sudan Export Processing Zones:
South Sudan Investment Authority is responsible for the setting up of export processing zones and special economic zones and this process is still in its infancy.
Tanzania Special Economic Zones:
The Export Processing Zones Authority (EPZA) in Tanzania is currently responsible for both Export Processing Zones (EPZ) and Special Economic Zones (SEZ). EPZA operates under the Ministry of Industry, Trade and Investment. EPZA is responsible for steering and implementing government policy on promotion of Special Economic Zones (SEZ) in Tanzania. Other functions of EPZA include the development of EPZ and SEZ infrastructure, provision of business services to EPZ and SEZ investors and issuing of EPZ and SEZ licenses. Once an investor obtains the EPZ or SEZ licenses, he or she does not require any other license except for highly regulated industries like food and drugs. Free Economic Zones (FEZ) in Zanzibar have been purposely established to attract FDI, specifically targeting labour intensive projects and increasing exports. Companies who set up their business in the FEZ designated areas enjoy simplified customs and other administrative procedures. Zanzibar currently has five free economic zones.
Uganda Free Zones:
The overall objective for adoption of Free Zones in Uganda is to create an enabling environment aimed at enhancing economic growth and development of export-oriented manufacturing in all sectors of the economy, in order to diversify the country’s economic base, attract foreign direct Investment (FDI), generate employment, increase foreign exchange earnings, enhance technology transfer, skill acquisition/upgrading as well as create backward linkages. The Uganda Free Zones Authority is a corporate body under the supervision of the Ministry of Finance, Planning and Economic Development. It was established in accordance with the Free Zones Act, 2014 and started operations on 1stSeptember 2014. The Agency is responsible for the establishment, development, management, marketing, maintenance, supervision and control of free zones and to provide for other related matters.
The EAC Partner States have had regular free and fair elections that have been endorsed by international observers.
In 1977, the Treaty for East African Co-operation establishing the East African Community was officially dissolved, and the main reasons that contributed to the collapse of the East African Community were:
lack of strong political will,
lack of strong participation of the private sector and civil society in the co-operation activities,
the continued disproportionate sharing of benefits of the Community among the Partner States due to their differences in their levels of development, and
lack of adequate policies to address the situation then.
These issues were addressed in the EAC Treaty establishing the East African Community (1999). For instance, Article 5(1) of the Treaty provides that the objectives of the Community shall be to develop policies and programmes aimed at widening and deepening co-operation among the Partner States in political, economic, social and cultural fields, research and technology, defence, security and legal and judicial affairs, for their mutual benefit. Article 5(2) of the EAC Treaty provides that in pursuance of the provisions of Article 5(1) of the EAC Treaty, the Partner States undertake to establish among themselves and in accordance with the provisions of this Treaty, a Customs Union, a Common Market, subsequently a Monetary Union and ultimately a Political Federation in order to strengthen and regulate the industrial, commercial, infrastructural, cultural, social, political and other relations of the Partner States to the end that there shall be accelerated, harmonious and balanced development and sustained expansion of economic activities, the benefit of which shall be equitably shared. To this extent, the EAC Partner States established a Customs Union in 2005, a Common Market in 2010, a Monetary Union in 2013, and with an ultimate objective to establish a Political Federation.
The Political Federation is the ultimate goal of the EAC Regional Integration. It is provided for under Article 5(2) of the Treaty for the Establishment of the East African Community and is founded on three pillars: common foreign and security policies, good governance, and effective implementation of the prior stages of Regional Integration. On 20th May, 2017 the EAC Heads of State adopted the Political Confederation as a transitional model of the East African Political Federation. The political confederation and later political federation is aimed at furthering political stability in the EAC.
Article 124 of The Treaty for the Establishment of the East African Community recognises the need for peace and security within the EAC Partner States. The same article spells out wide-ranging approaches for implementation in order to have a stable and secure environment within the region.
This kind of environment is geared towards promoting development and harmonious living of the people of EAC.
Peace and Security has been acknowledged at EAC level as critical to the creation of the right environment upon which regional integration in all aspects can be fostered.
Strategies on the control of cross border crime ensure the security of persons and goods as they move within the region are continually being developed.
The EAC Regional Strategy for Peace and Security was adopted by the 13th Council of Ministers meeting, held in November 2006, to guide EAC level interventions in the Peace and Security Sector. This strategy covers collaboration on cross-border crimes, auto theft, drug trafficking, terrorism, money laundering, and other crimes. This provides a good and conducive environment in which peace will flourish, and security of persons and property guaranteed hence fostering development.
The Peace and Security Sector remains very committed and dynamic in order to respond to the nature and form of the ever-evolving security threats.
The advancement in technology, knowledge dispersal, and globalisation in all aspects continue to influence crime types and trends. Towards enhancing co-operation in the sector, a Sectoral Council on Interstate Security was established to oversee the implementation of ever-increasing areas of cooperation in interstate security as elaborated in the EAC Regional Strategy for Peace and Security.
Despite isolated insecurity incidents, the whole of the EAC is largely peaceful with exception of South Sudan, which expects to end insecurity through the implementation of the unity government, which took effect on 12th November 2019.
There is sustained macro-economic stability in the EAC mainly due to effective macro-economic policies. A stable macroeconomic environment is one of the major enabling environments for growth and structural transformation.
Because growth and structural transformation are needed to substantially reduce poverty, EAC Partner States pay attention to macroeconomic stability. And because macroeconomic instability can lead to political and social instability, it captures the attention of policymakers and politicians.
Price stability is the primary objective of monetary policies in all EAC Partner States. However, core macroeconomic policies are not yet harmonized and remain country specific. For the EAC region, inflation, an important indicator of macroeconomic stability, remained in the double digits in 2018, increasing by 0.5 percentage point from 14.0% in 2017. But if South Sudan’s exceptionally high 104.1% is excluded, the region’s average inflation rate drops to an estimated 12.8% in 2018, and is projected to decrease slightly to 10.9% in 2019 and 10.2% in 2020 (East Africa Economic Outlook, African Development Bank Group, 2019).
Africa’s economic growth continued to strengthen, reaching an estimated 3.5% in 2018, about the same as in 2017 and up 1.4 percentage points from the 2.1 percent in 2016. In Africa, East Africa led with GDP growth estimated at 5.7% in 2018, followed by North Africa at 4.9%, West Africa at 3.3%, Central Africa at 2.2%, and Southern Africa at 1.2%. Southern Africa’s subdued growth is due mainly to South Africa’s weak development, which affects neighboring countries. Growth in Central Africa was gradually recovering supported by recovering commodity prices and higher agricultural output but remains below the average for Africa as a whole (AfDB 2019).
EAC is strategically located as a regional financial, communication and transport hub and also hosts continental offices for several international organisations and multinational companies.
The EAC is well positioned as a transport hub in the region.
The EAC lies between latitudes 7° north and 12° south of the equator and longitudes 29° and 41° east of Greenwich Meridian, with the equator crossing right through Kenya and Uganda. The region borders the Indian Ocean and Somalia on the east, and Ethiopia and Sudan on the north. On its western side, it borders Central African Republic (CAR) and the Democratic Republic of the Congo (DRC), while on the south it borders Malawi, Mozambique and Zambia.
The climate of the region ranges from tropical to temperate, depending on the elevation.
The different EAC Partner States are at different levels of infrastructure development.
Overall, in the last 10 years all Partner States have invested heavily in infrastructure development. Thus, the quality of soft, hard and critical infrastructure has greatly improved across the EAC
The region, therefore, has in place relatively well established infrastructure to support and sustain investments and businesses.
Infrastructure in the EAC can be grouped into three different types:
Soft infrastructure: Soft infrastructure refers to all the institutions which are required to maintain the economic, health, cultural and social standards, such as the financial system, the education system, the health care system, the system of government, and law enforcement, as well as emergency services. These types of infrastructure make up institutions that help maintain the economy. These usually require human capital and help deliver certain services to the population. In EAC, the soft infrastructure is of an acceptable standard.
Hard Infrastructure: Hard infrastructure refers to the large physical networks necessary for the functioning of a modern industrial State. These make up the physical systems that make it necessary to run a modern, industrialized State. In EAC substantial progress has been made in the development of the hard infrastructure including railways, roads, highways, bridges, Harbours, as well as the capital/assets needed to make them operational (e.g. transit buses and vehicles). Also an oil refinery is proposed for construction in Uganda that would serve the needs of the region.
Critical Infrastructure: These are assets defined by a government as being essential to the functioning of a society and economy. In EAC there is substantial development of critical infrastructure including facilities for shelter, telecommunication, public health, agriculture, etc.
