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Promising Prospects in East Africa: How to Tap into the Markets of Ethiopia, Kenya and Tanzani

Executive Summary

  • Positive development trajectories in Ethiopia, Kenya, and Tanzania build on population trends and the gradual emergence of wealth.

  • To fully capitalize on this potential across various business sectors, trade and transport infrastructure in particular require expansion.

  • The three countries’ pragmatic foreign policy is matched with large investments by members of the BRICS group. Especially China has emerged as an ally and key trading partner, casting a shadow over the significance of relations with the EU.

Implications for International Business

  • Ethiopia, Kenya, and Tanzania are modernizing their health, water, agricultural and electricity sectors as well as their service infrastructure and need high-quality technical equipment and know-how to do so.

  • East African countries look to strengthen their transport and service infrastruc­ture, with European businesses standing a good chance to win supplier contracts for projects awarded by international donors.

  • The recently launched African Continental Free Trade Area (AfCFTA) is expected to be a game changer in the coming years. Substantial business opportunities arise as trading and manufacturing in Africa will become easier and cheaper.

State of Play

Fragile but promising growth trajectories

Ethiopia, Kenya, and Tanzania stand out for relative political stability and GDP growth rates consistently above five percent. The trio along Africa’s Eastern flank is home to 245 million people – roughly a fifth of the continent’s population. Currently, their development is hampered by economic difficulties and security issues. Kenya faces rising costs of living, recently leading to riots, as well as an external debt of 67 percent of GDP. Tanzania’s President Samia Suluhu Hassan loosened the govern­ment’s authoritarian grip, but her country, too, struggles with debt (38 percent of GDP), and unfavorable property laws discourage outside investment. Ethiopia, once considered a “rising economic star”, now faces a foreign currency shortage and the threat of hyperinflation, as it emerges from the interethnic 2022 Tigray war.

Irrespective of these impediments, all three countries maintain promising growth trajectories. Kenya and Tanzania particularly benefit from economic integration with Burundi, Rwanda, and Uganda under the EAC. Ethiopia has begun to dissolve its Socialist heritage by liberalizing key markets. With donor support, Kenya, Ethiopia, and Tanzania have expanded technical and vocational education and training initiatives aimed at growing their skilled work force in order to utilize their immense labor market potential, as 60 percent of the population is under the age of 25.

Key Issues East Africa provides a geopolitical entry point…

International players, from the G7 to Russia and China, have sharpened their focus on the African continent due to its geo-strategic and economic relevance, including the 54 countries’ combined weight in international diplomacy. Here, anglophone East Africa has emerged as a strategic access point situated along main international trading routes. In a region that regularly experiences armed conflict and extremism, especially Kenya and Tanzania are stabilizing factors. They maintain comparatively calm political climates, only sometimes facing violent spillovers or insecurity during electoral periods. Even then, their past trajectories suggest that businesses are rarely affected. Although surrounded by conflicting states, Ethiopia’s relative stability and its market with 123 million potential consumers must not be overlooked, either.

European countries as well as the United States have a longstanding history of development cooperation in East Africa, yet new partners like China, Russia, and the Gulf States (especially Saudi Arabia, Qatar, and the UAE) recognized the potential of the region’s untapped markets much faster. China, in particular, has become a key trading partner for the three countries: Its exports more than doubled over the past decade, and the total trade volume reached $19 billion in 2022. By joining the BRICS as of 2024, Ethiopia anticipates not only strengthened trade relations but also fresh credit from the bloc’s New Development Bank to ease its fiscal pressure.

Neither Kenya, Tanzania nor Ethiopia possesses sufficient capacities to address their major internal challenges: The countries need to forge competitive economies with employment opportunities, to avail physical and service-related infrastructure, to modernize agricultural production, and to combat the effects of climate change. Following a largely pragmatic foreign policy, the aspiring low-income and lower-middle income economies hence eagerly foster political relations with those who emerge as potential investors. Despite warnings about becoming overly dependent on China, Beijing’s popularity remains high as it offers loans without conditions, delivers quick results, and practices a policy of non-interference. Despite its timid investments and vocal criticism of democratic deficits, the EU, in turn, still is a key export market and crucial partner: Its Multiannual Indicative Programme (2021-2027) pledges at least €1.5 billion in development cooperation to the three countries.

…with infrastructure investment being the key to unlock continental trade

Key drivers of economic development in Kenya, Tanzania, and Ethiopia are their growing populations, urbanization, and an emerging middle class. To satisfy the resulting demand for goods and services, such as in health care, Information and Communication Technology (ICT), electricity, real estate, water and transport infrastructure, all three countries need project development support, components supply, and technical know-how. Heavily affected by climate change, the farming sector requires agricultural engineering, import of pesticides, seeds and capital investment. A noteworthy investment opportunity lies in Kenya’s dynamic start-up ecosystem “Silicon Savannah”, with over 500 ventures in AgriTech, FinTech, GreenTech and E-Commerce. In a bid to grow the ICT hub (with a combined worth of $1 billion in 2018), Kenya’s President Ruto recently pitched to Microsoft, Intel, Google and Apple. Also, German building material supplier Knauf announced that it would triple its production capacity in Tanzania.

The AfCFTA is set to gradually eliminate existing tariffs and non-tariff barriers, which currently place Africa's cost of trading among the highest in the world. Already, the three countries have begun to improve their trade infrastructures: In 2019, Ethiopia expanded the Addis Ababa airport to hold the continent’s largest air cargo terminal, now handling around 500,000 tons of air freight annually. The EAC has tabled plans for an East African railway network, and Kenya is looking for investors to implement its $15 billion proposal to expand its standard gauge network to the Ugandan border until 2027. Under the current $30 billion World Bank portfolio, around 10 to 20 percent of funds are attributed to transport development and roughly another 10 percent to the energy sector. Beijing, in turn, invests in infrastructure megaprojects like the Lamu Port-South Sudan-Ethiopia Transport Corridor ($25 billion, partially funded by China) and Tanzania’s Bagamoyo seaport ($10 billion, mostly Chinese assets).

These major projects award large contracts for equipment suppliers and developers. Projects funded by contracting authorities from the BRICS bloc are difficult to win for outsiders; however, European businesses often gain contracts from international donors. Beyond this, the region remains responsive to European trade and investment: Kenya just closed negotiations on an agreement that will open up trade in goods and investment flows with the EU. The agreement will give companies preferential access to its market by liberalizing more than 80 percent of imports from the EU. With the prospects of improved infrastructures and the AfCFTA unlocking the entire African market, production sites and service delivery hubs will become more profitable. European businesses need to set up representations in at least one of the three countries concerned, as consolidated relationships with African partners will give them an edge at handling red tape and gaining crucial access to decisionmakers.


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