In 2013, East Africa saw increased activity in the oil and gas sector. Tullow Oil plc rounded off the year with a fifth successive oil discovery in Kenya. This comes approximately four years after the company discovered an estimated 310 million barrels to 710 million in Uganda. Uganda has the choice of either exporting through Kenya or Tanzania.

In Kenya, Tullow’s highest production estimate per well stands at 5,000 barrels of oil per day (bopd). Given the need to enhance commerciality of these discoveries, both countries have seen a need to cooperate.

Historically, the East African Community (EAC) has led all regional integration initiatives by consulting all five member states – namely  Kenya, Tanzania, Uganda, Rwanda and Burundi. The organisation has set out a road map for integration, named the EAC Treaty, which begins with the formation of a common customs union, market, monetary union and finally a political federation.

The latter part of 2013 saw the emergence of a new alliance towards integration between Kenya, Uganda and Rwanda. The advantages of economies of scale due to the recent oil discoveries may offer an explanation of this turn of events. However, there might be other reasons. New political leadership in Kenya and teething problems with the EAC Treaty implementation have also contributed to the current scenario.

The new alliance, dubbed the ‘coalition of the willing’, has set its sights on improving the region’s infrastructure. In August last year, the three Heads of State commissioned Berth 19 at the Port of Mombasa, which is set to ease congestion at the port by increasing its capacity. In October, they  met yet again to commission a design tender for an oil pipeline from Hoima, Western Uganda to Lamu on the Kenyan coast. In November, the Kenyan President was once again in Mombasa to launch the new railway line, which upon completion will run from Kenya to Rwanda.

The acceleration of regional integration efforts of willing member states is sending the right signals to investors.

However, the exclusion of Tanzania and Burundi has not gone unnoticed. Tanzania has moved ahead with plans to build a new railway line from Uvinza in Kigoma to Msongati in the Democratic Republic of Congo (DRC). This new railway will accelerate integration of Tanzania, Burundi and the DRC.

Although realignments may derail the region integration efforts led by the EAC, economic growth is set to accelerate.  Infrastructure improvements will ultimately lower the cost of doing business. Foreign direct investment (FDI) within the region is likely to increase as the market size is set to grow to 100 million between Kenya, Uganda and Rwanda.

These developments have caught the eye of companies like DOB Equity, a Dutch-based private equity firm, which has set up offices in Nairobi, and Ascent Capital which is raising funds to invest in  the region. It plans to invest between $3 million to $8 million in agribusiness companies, consumer, finance, services, fast-moving consumer goods, education and health in return for majority stakes or at least a 25 per cent shareholding.
Integration moves are also evident in the listed securities space.  For example, Kenya has offered Ethiopian companies a chance to raise funds and trade their shares on the Nairobi bourse to give them access to capital.  In addition, the Nairobi Securities Exchange plays a key role in the region by dual-listing shares of companies already listed in neighbouring Uganda.

Brian Maina
Analyst, RisCura Fundamentals


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