Strengthening Ties Can Boost Growth


A forum in Nairobi hears that growing links and sectoral transitions could result in economic advantages

After the growth of bilateral relations between the governments of Kenya and China, the two countries are strongly pursuing private partnerships to stimulate growth in their economies.

Such a move would not only sustain the pace of growth, but also widen the range of economic benefits enjoyed by the two nations.

That was the message at the recent China-Africa Entrepreneurs Forum held in Nairobi, where a 100-strong Chinese delegation, led by top officials of the Industrial Commercial Bank of China and private investors, visited the country for the first time.

Jiang Jianqing, ICBC's chairman, says Kenya has recorded impressive and sustainable economic growth, making it one of Africa's growth engines. "China can make an immense contribution to the Kenyan economy as the country pursues the goal of becoming an export-oriented economy," Jiang says during his keynote address.

He commends recent economic, institutional and legal reforms, saying they had created an investment destination that's conducive to Chinese investors.

He notes that ICBC was instrumental in supporting entrepreneurs during China's opening-up and reform, and will be a reliable partner as Kenya moves to expand its economy.

"We have already signed a memorandum of understanding with the AU (African Union) on infrastructure, because we believe it is the backbone of economic growth," Jiang says. The bank also signed a general infrastructure memorandum of understanding with Kenya during the forum.

ICBC is one of the world's largest financial institutions, with an asset base of more than $3.3 trillion. It made a profit of $44 billion last year.

Henry Rotich, Cabinet secretary for Kenya's National Treasury, explains that the country's recent growth has been anchored on sound fiscal policies and market-oriented strategies.

Robust growth

"African economic growth has remained robust, despite external shocks such as the global recession in 2008-09 and more recently the Europe recession. Most countries in the continent remain resilient and continue to post steady growth in per capital GDP," he says.

Rotich says a huge number of people have been lifted out of poverty, but stresses that the gains must be sustainable: "Achieving this objective can only be realized if African economies are able to mobilize significant resources for investment."

Referring to the forum as "timely", he says Africa's financial markets need to be strengthened to play a critical role in the continent's economic renaissance. "The opportunities for growth and economic transformation are obvious, and African financial markets just need to define and implement strategies that will enable them to seize these opportunities."

Rotich says hopes that the forum will provide a roadmap for African entrepreneurial growth and a development agenda, particularly for establishing partnerships with China, and emphasized that Kenya promises healthy returns for Chinese direct investment.

The Kenyan economy continues to be robust: In 2013, it grew by 5.7 percent, and last year's figure was 5.3 percent.

"We anticipate growth at a rate of 6.5 to 7 percent this year, and we expect to maintain this pace over the medium term," Rotich says.

Growth has been achieved despite terrorist incidents that have had an adverse effect on tourism, Kenya's main foreign exchange earner, and Rotich says Kenya is working to curb disruption and support the recovery process.

"The economic reforms program has seen inflation contained and foreign exchange reserves rise significantly. The public debt profile has improved, as can be seen from comments made on sovereign credit ratings by Moody's, S&P and Fitch," he says.

The ratings agencies' comments were prompted by the excellent performance of local financial institutions, according to Rotich, who notes that the Kenyan government will continue to focus on challenges such as poverty, unemployment and low productivity in the agricultural and industrial sectors.

Liu Xianfa, China's ambassador to Kenya, says China is willing to help the country develop a robust industrial sector. "This forum has been held at the right time and right place and by the right people, because the partnership between the two countries has reached a critical stage. China needs to seek opportunities overseas, while Kenya is the gateway to Africa. Therefore, the two countries need to match their needs and develop strategies that converge in their interests," he says.

Ben Kruger, joint CEO of Standard Bank Group, says Africa is a promising destination for investment: "The continent has been a shining global star, but nowhere shines brighter than the East African region. It has achieved sustained and rapid economic growth over the past decade, placing it firmly among the world's top performers."

He adds that growth has been accompanied by economic diversification as African countries transition from a heavy reliance on agriculture to sectors such as services, telecommunications, financial and construction. "While agriculture accounted for about 85 percent of exports 15 years ago, it has shrunk to about two-thirds, making room for increased manufacturing and mining exports."

The East African region's range of exports has become more sophisticated, and has increased substantially, Kruger says. "In 2010, Uganda exported more than 500 different manufactured products, while Kenya and Tanzania have shown similar diversification," he says.

He notes the rapid growth of "financial inclusion", and says 75 percent of adult Kenyans use formal banking services, compared with an average of 54 percent in sub-Saharan countries.

Kruger says regional growth is expected to remain at 6 to 7 percent in the coming years, driven by rising household consumption, continued public and private investment in infrastructure, and improvements in efficiency as a result of rising security levels and improvements in the energy sector.

Those factors definitely increase the investment opportunities for Chinese investors, he says, adding that most of the infrastructure projects in the region are partnerships between China and African governments.

Switching sectors

Zhang Weiying, chief economist of the Yabuli Chinese entrepreneur forum and who was among the participants, says the Chinese economy could be further stimulated through diversity.

"China still has great potential for high growth if entrepreneurs shift from quantity- to innovation-driven activities," he says, and predicts such a move would result in mergers and acquisitions in Africa.

"Entrepreneurs, therefore, need reliable financial investments to support the innovation-driven growth curve."

Jibran Qureishi, an economist at CfC Stanbic Bank, says Kenya does not lack innovation, and partnerships between the two countries can be formidable.

"Direct investment from China is still low compared with Latin America. We hope the tide will turn soon as the government embarks on reforms that will increase productivity in the agricultural sector," he says.

He points out that Africa boasts ample arable land, and modern farming methods, such as irrigation systems, could allow it to become a net exporter of cereals to the Chinese market. He also adds that opportunities abound in the consumer market as higher levels of education have propelled a large number of people into the middle-income bracket.

"Agriculture has not been very successful in formalizing the informal sector. But we are becoming agribusiness and agro-processing economies. More jobs will definitely be created," Qureishi says.

Xin Zou, deputy general manager of ICBC's Investment Banking Department, was less optimistic, saying doubts still linger about the skills capacity of the regional labor force and long-term profit sustainability.

"When considering investing in equity in relation to debt, we look at the long-term market environment and whether it is sustainable," Xin says, with reference to political instabilities and uncertainties that have troubled some African governments.

Other factors, such as currency volatility, inflation and a number of external shocks, also are important considerations for foreign investors.

"Public-private partnerships are very attractive because the risks are spread. Capacity building is therefore needed to improve efficiency and productivity of government institutions," says Xin, who formerly conducted research and strategic microeconomic planning for ICBC.

He adds that foreign investors always seek out well-structured, established companies for partnerships. "It's risky to enter joint ventures with little-known companies."

However, Gachao Kiuna, CEO of TransCentury, a Kenyan investment group with a huge infrastructure portfolio, says the catalyst for African renaissance lies with Africans.

"China is one of the few countries that has achieved unique growth, buoyed by reforms that boosted domestic investment. This is smart capital that will attract foreign investment," says Kiuna, one of the chief architects of Vision 2030, Kenya's economic blueprint.

He says Africans need a paradigm shift, and need to realize that foreign investment cannot do everything. "Just like China, Africa needs to invest in itself before seeking partnerships outside. We have learned a lot from looking at China."

Updated at ChinaDaily.COM.CN 2015-07-24 By Lucie Morangi