UK’s Department for International Development to uncover roadblocks

Why invest in East Africa?

For several years now, East Africa has been attracting investors. In the horticultural industry, many foreign direct investments have been made already and probably many more companies are currently considering the possibility. However, what are the roadblocks and investment impediments that investors face? This is what the UK’s Department for International Development (DFID) wants to uncover so that it may identify programmatic solutions that would contribute towards overcoming some of the impediments to foreign direct investment in Africa, particularly in Rwanda, Kenya, Tanzania, Uganda, and Ethiopia.

Consultant E. Brooke Whitaker is currently advising DFID. "Core to this exercise requires speaking directly with companies particularly those involved in labour intensive operations such as horticulture to understand from the investor’s perspective the impediments and roadblocks they face." Till January 7,2017 Whitaker will be available for a discussion with any company that have contemplated investing and establishing horticulture operations in East Africa, but have not yet made the investment."

Why invest in East Africa?
Why should a company want to invest in East Africa? According to Whitaker, there are several factors that makes investing in East Africa interesting. "First, the countries are known for their favourable climate and very competitive labour costs. Additionally, the existing trade incentives with major flower importers like the USA and Europe allows duty free access to these markets. Furthermore, each East African country is attracting investors with their own set of investment incentives. This when combined with the prospects that the demand for flowers from China is increasing and growing areas in Europe are decreasing, establishing horticulture growing operations in East Africa presents a compelling opportunity for some firms." However, these are just some of the factors mentioned by Whitaker.

Challenges
The infrastructure, or the transportation costs, and the environmental impact of water usage for horticulture are such factors that are currently creating challenges but Whitaker expects them to decrease significantly over time. "These East African countries are investing significant sums of capital to improve their infrastructure. The roads, ports, railways and cold chains, for example, are being improved continuously. Furthermore, this year Royal FloraHolland, KLM Cargo, and Amsterdam Airport Schiphol announced the formation of a strategic alliance to boost flower imports. The combination of these factors creates for horticulture investors in East Africa a very significant long-term opportunity. For the environmental impact of water usage, yes some companies in Naivasha, Kenya have had to deal with this issue, but many companies are adapting through inventive growing solutions and through rainwater capture."

Risks
Earlier this year, there have been some disturbing news from Africa. The close-down of Esmeralda Farms in Ethiopia due to the damage caused by government opponents, negative press regarding incidents in Uganda at Royal van Zanten and the petition of the angry workers from Kenyan nurseries Flamingo Holdings Flower Farm and Aquilla Flower Farm, for example. Do you think that these issues are withholding investors to invest in these countries? "Of course, in every country, one must deal with certain types of risk, so in East Africa too. In Ethiopia, for example, the government is very actively addressing these issues so that the country continues its significant growth trajectory not just in horticulture, which employs a very significant number of Ethiopians, but also in other sectors such as textiles and apparel. The other point, regarding the negative news about farms operating in the region, I think the issue is that firms operating anywhere in the world need to have in place adequate risk management policies and procedures particularly those related to ESG or environmental, social and governance risk. First, to reduce the risk of such issues occurring in the first instance, but second, companies with high ESG standards that communicate clearly with stakeholders often create more value than those that do not. All companies operating in the sector should take this as an opportunity to mitigate these risks and communicate effectively with their stakeholders. Many of these are firm level risks that a company’s board of directors should require that their senior management team address,” says Whitaker.

Win-win situation
All in all, according to Whitaker, it is definitely worth investing in these countries. "I have seen the growth in East Africa occur over the past 25 years. Ultimately, the more investment that flows into a country or region demonstrates to investors that have long sat on the fence that the region is ripe for investment. Many countries in the region are taking very active steps to improve their investment climates, and firms are succeeding to generate returns and create value for their shareholders and the communities in which they operate. So, a win-win situation in the end for those that make smart investments and manage those investments effectively."

For more information
E. Brooke Whitaker
Email: ebwhitaker@thumos.vc

and

Department for International Development
www.gov.uk

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