Five reasons why East Africa should be in every investment portfolio

East Africa is one of the fastest growing regions in the world. Good economic framework conditions and political stability form the basis of an unparalleled success story. In this article we explain five reasons why East Africa should be part of every well-structured investment portfolio.

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East Africa comprises 20 states. The most important are Ethiopia, Kenya, Rwanda, Tanzania and Uganda. With a total area of ​​more than six million km², East Africa is larger than Europe. The population is slightly smaller at more than 300 million people Afrika fonds investieren. The economic growth of East Africa was in 2019 at around 6% – the highest in Africa. According to the African Development Bank , East Africa will remain the most dynamic region on the continent in the future.

The top reasons to invest in East Africa are:

Peace and stability
Big steps with “small” investments
Risk diversification
African Free Trade Area (AfCFTA)
Change of mentality
map africa by region investing mlc properties
Peace and stability
Investors are counting on the African region, which is most shaped by peace and stability. Most of the countries of East Africa show a low level of corruption, high political stability and the rule of law and thus offer a safe and protected business environment, according to the BVMW (Federal Association of Medium-Sized Enterprises) .

An important foundation stone for peace and stability was laid in 2000 with the establishment of the East African Community (EAC) . The partner states of the EAC jointly pursue the goal of deepening economic, political, social and cultural integration. People’s quality of life should be increased through security, competitiveness, added value, trade and investment.

A pan-African guarantee of peace and stability that is important for foreign investors is the establishment of the African Union (AU) based on the model of the European Union. The AU pursues the goal of greater political and economic integration of the continent and gives it a unified voice. The African standby forces provide a military clout to jointly enforce peace against terrorist groups.

african union emblem mlc properties
African Union emblem
Big steps with “small” investments
Like the other African regions, East Africa is only at the beginning of industrialization. It is one of the poorest regions in the world. The productivity of the people and the efficiency of the company is comparatively low. Measured by western standards, the infrastructure is in need of improvement. In almost all areas of the economy and in public administration, potential for improvement quickly becomes apparent. At this stage of development, major increases in efficiency can be achieved even with “small” investments.

A good example is the new Grand Ethiopian Renaissance dam . The connected hydropower plant is the largest in Africa and will not only reliably supply Ethiopia, but also other countries in East Africa with electricity. It will reduce the electricity costs or, in some cases, make electricity supply possible in the first place. A dam comparable to the Ethiopian project is the construction of the Julius Nyerere hydropower plant in Tanzania, which will become the fourth largest hydropower plant in Africa.

Rwanda is land-locked, which means that it does not have its own seaport. The only options for importing and exporting goods are (expensive) air and country roads. However, the road network is of poor quality – transport times and costs are high. The completion of the railway line between the Tanzanian city of Isaka and the Rwandan capital Kigali will lead to a high increase in efficiency. In particular, however, Rwanda has a fast and inexpensive connection to the port of Dar es Salaam, which significantly increases its international competitiveness.

A Rwandan logistics center built in 2018 is also a good example of increasing efficiency through “small” investments. The logistics center in Kigali has reduced the average turnaround time from 10-14 days to 3 days. There are many other examples. They make it clear that there is enormous potential for added value, which results from comparatively low investments. East Africa is making great leaps forward.

railroad rwanda tanzania invest africa mlc properties
New railway line between Rwanda and Tanzania
logistics center rwanda five reasons to invest mlc properties
New logistics center in Kigali, Rwanda
Risk diversification
“Don’t put all your eggs in one basket” is probably the most important rule of investing. For example, anyone who invests all of their assets in a single asset class or geographic region is exposed to a high risk of loss. Investors distribute the risk of loss through risk diversification. Losses on one investment can be offset by gains on another.

East Africa is particularly well suited for risk diversification because it is one of the fastest growing and most stable frontier markets in the world. This enables East Africa to absorb economic shocks better than highly developed economies.

Comparison of growth regions Africa
African Free Trade Area (AfCFTA)
The African Free Trade Area (AfCFTA) is probably the most important African joint project. The intra-African tariffs are currently 6.9%. This and other trade barriers , such as different product standards, are one reason why intra-African trade currently only accounts for 17% of all-African trade. Due to AfCFTA, common standards are created and 90% of the tariffs on goods are abolished. This creates a $ 2.5 trillion market.

Due to falling costs and a corresponding increase in competitiveness, a significant increase in intra-African trade is expected – African industrialization will continue. The manufacturing industry in particular benefits. A significant strengthening of the middle class is also expected. East Africa will benefit particularly strongly from AfCFTA because it is already well positioned economically.

african free trade area afcfta african union emblem
Emblem of the African Free Trade Area (AfCFTA)
Change of mentality
The African continent is characterized by a culture of donations that has lasted for decades. Because the western world has felt called to do “good” in a variety of projects. However, this has led to mental dependencies on the African side that inhibit innovation and initiative. However, Africa is now in a state of upheaval.

The President of the East African country Rwanda, Paul Kagame, summed up the African mentality change: “We in Africa have now understood that trade and investment, not financial aid, are the pillars of our development.”

Other African leaders also embody this change. The Ghanaian President Akufo-Addo underlined : “We can no longer align our policies with what we can get from the western world. This has not worked in the past and will not work in the future. It is our responsibility to develop our nations independently. “

A good example of the move away from the dependency mentality is the creation of the African free trade area. A more abstract example is the planned renaming of Lake Victoria in East Africa. The petition in the neighboring countries Kenya, Tanzania and Uganda is justified by the fact that the lake is a regional cultural asset and should not bear the name of a person who was an advocate of the slave trade.

africa mentality change kagame rwanda mlc properties
Interview with Rwanda’s President Kagame
Investment products
Investors who want to participate in the African boom can fall back on various equity funds and ETFs. The following equity funds have a weighting of around 10% in Kenyan equities and thus East Africa: DWS Invest Africa LC , JPM Africa Equity and Robeco Africa Fund . The ETF DB X-Trackers MSCI EFM Africa TOP 50 Capped Index also invests in Kenya with around this weighting.

There are also alternative investments. For example, GreenTec Capital invests in innovative and sustainable African startups, including in East Africa in digital logistics solutions or innovative and sustainable feed solutions for fish. The provider MLC Properties enables investors to participate financially in real estate projects in the East African countries Rwanda and Tanzania through the limited partnership MLC Properties East Africa

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