New Fund to Boost Emerging East African Economies (NEWS BRIEF)

Small and medium-sized enterprises are the engine of growth in East Africa. In Burundi, beer companies account for the vast bulk of tax revenues. CREDIT: M Bociurkiw/HUMNEWS(HN, August 18, 2011) - Exotic is almost an understatement to describe the portfolio of investments targeted by the UK-based Fusion African Access Fund.

A private cemetery in Kenya, a Rwandan manufacturer and financial services firms in Rwanda and Uganda are among the small and medium-sized enterprises across East Africa targeted for the $150 million private equity fund. It will invest between $250,000 and $5 million in each project.

Fusion Investments is based in Manchester and Nairobi.

A Nairobi-based western diplomat who monitors the region told HUMNEWS recently that emerging regional integration into the East African Community (EAC) is boosting the economies of Rwanda, Burundi, Uganda, Tanzania and Kenya.

Together, they represent a common market of 133 million people and combined GDP of $75 billion.

According to the UK's Department for International Development (DFID), successful integration of the EAC "has the potential to open export markets and increase inward investment, as well as reduce the cost of trade and improve transport links."

"We began investing in March and expect to invest all this money by the end of the year. The first term will be a five-year pay back period with at least 25 percent rate of return," Fusion Capital Chief Executive Luke Kinoti told Reuters.

Small and medium-sized enterprises are the engines of growth in East Africa and, in the case of Kenya, contribute about 40 percent of its gross domestic product (GDP).

The World Bank says that in the past five years, all East African Community economies made it easier to do business. In a report released this week, it says Kenya has some of the most business-friendly regulations for dealing with construction permits. Ugandan courts resolve insolvency relatively efficiently. And Rwanda is among the fastest places to start a business.

Still, the risk for investors looking at the region is considerable. Rampant corruption in countries like Kenya and Burundi, under-developed infrastructure, red tape (i.e. securing bank loans and registering land titles) and security threats can scuttle the best intentions of investors.

Kenya Airways is one of the region's best-run companies, and is key to regional integration. CREDIT: M Bociurkiw/HUMNEWSPhil Godwin, Fusion Capital's chairman and its largest shareholder, acknowledged this fact.

"Country risk, politics and currency volatility are a fact of life in frontier markets," Godwin told a launch ceremony.

"Our approach is not at all about making predictions of what will happen but ensuring that, whatever happens, we have made good long-term investments for our investors."

He said the weaker shilling currencies in the region offered a good opportunity to invest into a region which has had stable economic growth of 5-6 percent in the last five years.

But even countries such as landlocked Burundi, which is emerging from a 12 year civil war that killed 300,000 people and left the country devastated, is attracting foreign investment - including from a Toronto-based gold mining company.

A Wall Street analyst told HUMNEWS that, for many investors eyeing Africa, sitting on the sidelines of the action could be a costly play in the long-term.

"To many public and private equity investors Africa has emerged as a 'China play' in that much of the capital flowing into Africa is from Chinese companies desperate to mine the region’s rich cache of metal commodities used to fuel China’s huge economic growth engine. The Chinese have to a large extend jump started much of the region’s  economy, creating jobs and disposable income, and in many cases for the first time.”

For its part, the EAC said it wants to see a more vigorous business environment in its member countries. "We are serious in our role in the creation of an environment which is attractive to increasing private sector activity within and across our borders," said Enos Bukuku, EAC deputy secretary-general.

- HUMNEWS staff, agencies