2020: How to Grow Business in East Africa

Published on 28th January 2020

Global economic growth may be slowing but Africa is bucking the trend. Rising populations, along with rising incomes, emerging industries, and untapped markets present promising business opportunities, especially in East Africa.

The World Bank's 2019 Doing Business Index ranks Kenya and Rwanda above South Africa and Nigeria for ease of doing business. And Djibouti is among the top four improvers in the world. What's more, six of 2018's top 10 fastest-growing economies were in Africa.

These top-performers have something in common: Entrepreneurship – but not for the sake of it. Entrepreneurship in Africa is driven by a desire to solve the continent's most pressing challenges, like education, connectivity, infrastructure, financial and technological inclusion, and healthcare.

Rather than seeing these challenges as barriers to doing business, entrepreneurs see them as opportunities to fill the gaps, meet local demand, and cause ripple effects throughout the economy.

So, what are the biggest growth opportunities in East Africa today? Let's look at the top three.

1.    Infrastructure

Although economies in East Africa average 5% GDP growth per year, economists estimate that growth could have been 2.6% higher with improved infrastructure.

Africa's infrastructure challenges are broad and varied. They hamper growth and investment, and keep the cost of doing business high. Only 16% of the East African population has access to electricity and the Internet. Transport costs in sub-Saharan Africa are 100% higher than the global average, due to poor infrastructure.

Yes, governments are trying to close the gaps – infrastructure investment is currently around $80 billion a year – but there's an opportunity for investors to make a bigger impact.

Addressing the infrastructure gaps will enable economic growth, boost productivity, and increase standards of living for millions. It will accelerate trade and industrialisation, and drive sustainable, inclusive economic development.

To realise these benefits, Africa needs private sector funding, skills, and technology to support infrastructure development initiatives and skills and knowledge transfer. It's the quickest and most efficient way to unlock Africa's growth potential.

2.    Agriculture and resources

Africa is rich in minerals and other natural and agricultural resources. It holds 10% of the world's natural gas and oil reserves, as well as diamond, gold, platinum, and copper reserves. It's also home to 60% of the world's arable land, yet only 10% of that land is being cultivated, and only 5% is irrigated.

The knock-on effect of improved infrastructure, like better access to energy and better roads and railways, will help businesses to better exploit these resources and improve the region's global competitiveness through lower production costs and higher efficiency.

Growing Africa's agricultural sector is crucial for food security. If Africa fully utilised its arable land, it's estimated that farmers could meet the food needs of the whole world, yet it still relies heavily on imports of dietary staples like wheat, rice, and maize. With agriculture is already accounting for 24% to 44% of GDP in East Africa, imagine the economic impact if its full agricultural potential was unlocked.

The private sector can help African agribusinesses by providing desperately needed funding, support with innovative solutions, and data analysis to help farmers understand, for example, the optimal time to plant and harvest crops, and to monitor soil quality, pest infestations, and weather patterns, to get the best yield.

3.    Technology

There were more new broadband connections in sub-Saharan Africa between 2008 and 2015 than anywhere else in the world. What's more, mobile data traffic is expected to increase sevenfold across Africa between 2017 and 2022, and more than half of the world's mobile money accounts are in Africa. Although 74% of the Kenyan population has a mobile phone subscription, and 43% have access to the Internet, rural areas are still largely unconnected.

There's so much potential to increase telecoms access across the continent, especially as society becomes increasingly digital and cashless. Reliable and ubiquitous telecommunications infrastructure can connect people, markets, and economies. It will improve education and foster innovation and productivity – and all this positively impacts the economy.

Automation technologies like artificial intelligence (AI) and machine learning may fuel further growth in Africa. With the ability to automate complex tasks, solve problems, and recognise gaps in knowledge, these technologies can augment human activity to enhance productivity, boost the value of capital goods through efficiency, and allow innovators, entrepreneurs, and corporations to scale their efforts to solve Africa's challenges.

Taking Africa into the next revolution

The Fourth Industrial Revolution is rapidly transforming how the world lives and works – and momentum is picking up. Robotics, AI, the IoT, and data science are disrupting all industries and economies, and we can't leave Africa behind.

The most successful businesses will be those that meet the continent's challenges and unmet needs with entrepreneurship, innovative solutions, and long-term commitment.

By Nikki Summers,

Regional Director for Sage in East Africa

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