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OPINION | Kenya is poised to become the ‘Singapore of Africa’

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Nairobi City at night
Of all the countries in sub-Saharan Africa to be optimistic about, the most promising is Kenya. Economic and political forces are converging to put the continent’s seventh-largest nation in a relatively favorable position.

Africa is the fastest-growing continent and is expected to account for one-quarter of the world’s population by 2050. That means more multinational corporations see a need to have a direct presence somewhere in sub-Saharan Africa. Many such companies already realise they need a presence in Asia, with Singapore proving increasingly popular as the hub, especially as Hong Kong has been absorbed into communist China.

Where in Africa might such a comparable cluster of companies evolve? Unfortunately, some of Africa’s leading nations have experienced major troubles lately. Economic growth has slowed in Nigeria, Africa’s most populous nation and the country has only begun to make much-needed reforms; Ethiopia, the second-most populous country, just went through a civil war; political problems and power shortages continue to plague South Africa. For the time being, those places are not in the running to be a dominant sub-Saharan economic hub, if only because ex-pats will be reluctant to move there.

In contrast, a locale with a reasonable level of English fluency and an attractive year-round climate will get a lot of attention — and that nicely describes Kenya. Kenya also had a growth rate of about 5.5% last year, despite negative shocks to the prices of imported food and energy. Since 2004, growth rates have been in the range of 4% to 5%.

Kenya also has some geographic advantages. It has an extensive coastline on the Indian Ocean, and research suggests that landlocked countries have worse economic performance. Countries with a coast also find it easier to stay in touch with the rest of the world, and Kenya has relatively easy access to China and India, large markets and sources of capital. In the current geopolitical climate, East Africa is attracting more interest from more sources than is most of West Africa.

In terms of scale, Kenya’s population of about 57 million cannot compete with Nigeria’s 222 million. But East Africa, with almost 500 million people, has a larger population than West Africa.

Tanzania, just to the south of Kenya, has a larger population than Kenya. But Kenya is much wealthier and has a superior infrastructure — and that includes the digital infrastructure, as internet access in Kenya is ranked among the most reliable in Africa.

To the extent the world focuses more on green energy, Kenya also has a positive story to tell. The country already has more than 80% renewable energy, and the climate is ideal for an ongoing expansion of solar power. Foreign companies looking to boost their green reputations might find Kenya an attractive destination. That said, expensive energy — due in part to taxes and poor regulation — has been a growth drawback.

There are other elements of the case against Kenya. It has had difficulty attracting foreign direct investment, even compared to other African nations. Corruption, regulatory barriers to entry, and political instability remain concerns and cannot be dismissed lightly.

That said, Kenyan governance has been stable as of late, and the 2022 election went relatively well. The government is proving more adept at preventing major terror attacks, often coming from groups in Somalia. As Kenya becomes wealthier, there is a good chance those problems will diminish further.

It is also possible that sub-Saharan Africa will not develop a single dominant corporate hub at all. The United Arab Emirates will continue to evolve into Africa’s financial center, Lagos will have the most startup activity, South Africa will remain the dominant business center in the South — and London, Beijing, and India will play more important roles in Africa’s economic future.

Still, African distances are great and its population is growing, two simple facts that argue for Kenyan growth no matter what. The idea of putting a manufacturing plant or service center near Nairobi or Mombasa makes sense even if it serves only East Africa. Kenya’s immediate neighbors to the west and south, Tanzania and Uganda, also have an English-language background, and Tanzania may become one of the world’s most populous countries.

Not only is Africa rising, but East Africa is too. And Kenya is likely to be the easiest and most predictable way to bet on it.

Story by Tyler Cowen – a Bloomberg columnist.

 

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