East Africa needs strong financial institutions to support fast growth

28th Jan, 2016

Once thought of as a backwater investment destination, East Africa is fast emerging as an economic hub with promising growth prospects. The African Economic Outlook report by the African Development Bank released early this year, indicated East Africa will record the fastest growth on the continent in 2015 and 2016.

With the region boasting of much greater political stability and peace in most of the member countries, the positive growth trajectory predicted over the medium term is an indicator that the EAC has a good chance of reaching a developmental tipping point and in turn making it the most attractive investment destination on the African continent.

Kenya’s recently attained status of a middle-income country, its ranking as the 9th largest economy in Africa and sub-Saharan Africa’s 4th largest, has cast a sharper focus on key sectors that will drive the economy through the coming decades. The rest of East African countries—Uganda, Rwanda, Burundi and Tanzania—too are continually deepening their development agenda, putting the region on track of a major economic expansion.

To sustain the momentum, significant investments are still needed in anchor sectors such as agriculture, energy, education, manufacturing, to name but a few. Deliberate policy actions that will improve the ease of doing business and raising the competitiveness of Kenyan exports will also be critical if Kenya is to cement its stature as the go-to investment destination in Africa.

Yet equally important is a financial services industry that has the capacity to support the growth ambitions of the Kenyan and East African economies. For homegrown East African companies seeking to expand globally and multinational corporations looking into the East African opportunity, getting stable and credible financial partners remain vital. I am a strong believer in African institutions and I hold it that Africa will be built by Africans.

Increasingly, Kenyan financial institutions are receiving global recognition to the benefit of the regional economy as a whole. The need for the economy to have strong and stable lenders is what forms the basis for the ratings by Global Credit Ratings agencies. Earlier this month, KCB Group was assigned top ratings by two of the major global ratings agencies, Standard & Poor’s (S&P) and Moody’s. The ratings gave the bank a stable outlook, affirming has a strong headroom to fund bigger projects in the East African region on the back of high capital and liquidity buffers.

The banking sector is primed to play a bigger role in the financing of the on-going mega infrastructural projects that are. The ability to extend facilities to companies seeking investment in anchor industries such as energy, construction and horticulture presents new avenues to stimulate growth.

There has been a lot of talk about Africa’s rising economic prosperity and whether it is sustainable and deeply rooted in reducing extreme poverty across the continent. It is one of the regions in Africa that is poised to enable the continent rise is the East Africa Community, which Kenya is a member.

When it comes to future global investment strategies, the E.A region is high on the agenda for investors and entrepreneurs. This means that East African business leaders and entrepreneurs need to engineer multi-national SMEs, drive investment, competitiveness, foster inclusive growth and build resilience in a volatile global environment. Accelerating economic diversification, boosting strategic infrastructure and unlocking talent are critical success factors in this new global economy context.

The above assertion was reinforced by the recent Global Entrepreneurship Summit that exposed the dynamism and enthusiasm of young entrepreneurs in driving entrepreneurship across the region. The conference provided an opportunity for emerging entrepreneurs to connect with leaders from business, international organizations, and governments looking to support them. It also demonstrated Kenya’s strength as a country, the innovative spirit for our people across the region and our ability to take part in the transformation process of our region.

It goes without saying that entrepreneurship, innovation and SMEs are the major keys to sustainable economic and private sector development in East Africa. As growth accelerates on the continent, it generates with it new opportunities and challenges. It is important that we address the needs of small and medium enterprises that don’t have access to the funding, as well as invest in development of African Capital Markets as a more viable alternative through which private investors can mobilize investment capital.

By: Joshua Oigara

The writer is the KCB Group Chief Executive Officer and Chairman of the Kenya Bankers Association

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