Exploring infrastructure investment in EAC - CNBC Africa

Exploring infrastructure investment in EAC

East Africa

by Jacques Nel 0

Integration efforts within the East African Community (EAC) received a significant boost at the end of November.

This occurred when the World Bank pledged to provide support for infrastructure investment across the region.

The multilateral organisation stated that it will loan the East African nations $1.2bn to improve inland waterways and ports in Kenya and Tanzania, as part of efforts to boost integration in the region. More specifically, the funds will be used to revive inland waterways on Lake Tanganyika and Lake Victoria, and improve handling capacity and efficiency at the Mombasa and Dar es Salaam ports. 

The five-nation EAC, which comprises Kenya, Tanzania, Uganda, Rwanda and Burundi, is undertaking a substantial infrastructure investment programme while also deepening policy integration and reducing barriers to trade.

In a recent 2015-25 strategy paper, the bloc stated that it needs at least $68bn, and possibly up to $100bn, over the next decade to develop roads, ports, railways, transmission lines and oil & gas infrastructure. 

Looking at the financing of the ambitious investment programme, in addition to the World Bank’s recent commitment, the European Union (EU) has also recently stated that it is prepared to support projects worth up to $750m to improve the region’s infrastructure, while Trademark East Africa also pledged $350m to expand ports, one stop border points and road connectivity.

The EAC is already in talks with development partners, including the African Development Bank, European Investment Bank, as well as countries like China and India, as potential sources of funding. 

Turning to China, political leaders in East Africa are looking east in an attempt to make use of the region’s close ties to Beijing in a funding drive for a planned standard-gauge railway network.

According to reports, representatives from Kenya, Uganda, Rwanda and South Sudan will begin a fundraising drive in China in the first quarter of next year with the aim of financing an ambitious $13bn railway infrastructure plan. The countries are upgrading and extending their railway networks to reduce transport costs in the region. 

Furthermore, the EAC plans to allow infrastructure-bond sales across four markets in the bloc to take advantage of private-sector interest in the region’s development.

According to the Kenyan Capital Market Authority, the framework will allow for the sale of “multijurisdictional, multi-currency” debt from within or outside the four-country group (EAC excluding Burundi). The Kenyan authority stated that one “regional entity” has been approved for these bond sales, without providing further technical or timing details. 

Regional integration holds significant potential to support economic growth in the EAC, as smaller economies benefit from larger regional markets, and investors take advantage of comparative advantages in the larger East African economy.

The EAC has already adopted various initiatives to support integration, including the East Africa Standards platform, the Single Window Information for Trade (SWIFT), a single tourist visa (currently only applicable for Kenya, Rwanda, and Uganda), while the bloc has also discussed the possibility of a single currency over the long term. 

Looking at the East African region more broadly, future electricity exports from Ethiopia could provide the catalyst for more widespread integration, improving ties between the EAC and the region’s second-largest economy & Africa’s second-largest population. 

East Africa is generally stable politically; the region’s average risk rating is dragged up by South Sudan, still wracked by civil war and facing the danger of a famine as negotiations between the parties fail to deliver. Ethiopia presents ‘moderate’ risk because of authoritarian one-party rule and the persistence of local resistance movements in peripheral regions.

Uganda and Tanzania are rated ‘low tending moderate’, with some risk in the former country because of President Yoweri Museveni’s autocratic style and reaction to that within his party, as well as from the opposition.  

In Tanzania, the main risk is of division between Zanzibar and the mainland, and this risk has been kept alive by the ruling party’s effort to push through an unpopular draft constitution.

Kenya and Rwanda both present low political risk thanks to economic growth and increasing political maturity, even though in the former country terrorism, populist moves by the opposition, and fiscal overreach related to devolution are concerns, and in the latter the government’s intolerance of dissent could fuel instability in the longer term and may threaten flows of donor funds. 

*Jacques Nel is an economist at NKC Independent Economists

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