East Africa’s Growth & Investment Landscape: A Look at 2024’s Third Quarter for the Region’s Biggest Players
With the projected growth acceleration of 1.6% points in 2024 from 3.5% in 2023, East African countries have positive forecasts for their economic growth. The countries have the following growth predictions respectively: Rwanda (7.2 %), Ethiopia (6.7%), Tanzania (6.1%), Uganda (6%), Burundi (5.8%), and Kenya (5.4%). The initiatives to modernise agriculture and improve productivity in the services sector have positively contributed to economic growth. Increased government spending and strategic investments to boost domestic connectivity have strengthened intra-regional trade ties. Together, these factors are expected to drive strong economic performance in the region. In particular, four economies – Ethiopia, Kenya, Tanzania and Uganda – already account for around 84% of the region’s output.
This article will investigate East Africa’s investment field in the third quarter of 2024, focusing on key drivers such as agriculture modernisation, service sector productivity, government spending, and infrastructure development. It will explore how these initiatives, alongside strategic investments in domestic connectivity and intra-regional trade, contribute to the region's robust economic growth.
Market Indicators
The third quarter (Q3) saw a flow of deals across various sectors, such as agribusiness, manufacturing and energy, reflecting East Africa's growing importance to investors, local businesses and governments as an investment destination. In Q3 2024, several key market indicators are influencing investor sentiment in EA. Fiscal reforms in Kenya as efforts to reduce public debt through the increase in taxes, such as the capital gains tax to 15% and streamlined tax policies, are seen as pivotal in retaining investor confidence. In Uganda, generous tax incentives such as implementing a tax holiday of ten years to exporters who export at least 80% of their produce of finished goods, subject to certain conditions, are attracting foreign investments. Furthermore, recent amendments to the Income Tax Act to waive taxes on the income earned from investments by venture capital/private equity firms domiciled locally are expected to increase Uganda’s investment appeal.
The Nairobi Stock Exchange (NSE) continues to be a bellwether for economic activity, with rising trading volumes signalling renewed interest, especially in agribusiness and real estate. The number of deals closed in Q3, particularly within the agribusiness and renewable energy sectors, indicates a growing focus on sustainability and long-term growth. Comments from market participants highlight optimism, but caution remains tied to political stability and the pace of policy reforms.
Recent government budgets across the region have prioritised infrastructure and energy, aligning with the sectors where most deals are happening, making East Africa a promising yet cautious space for future investments.
Selected Deals
The agricultural sector has attracted some of the largest investments made this year, such as the Elite Agro Project, a partnership agreement between the UAE and Kenya, and the investment of €490,000 by Proparco to boost East African agriculture with Maris Africa. East Africa primarily relies on agriculture for sustenance due to its favourable climate, large rural population, and historical dependence on farming as a source of livelihood. Agriculture employs the majority of the region’s workforce, with small-scale farmers producing key crops like maize, coffee, and tea, which support both local consumption and exports. Consider Uganda, where the agricultural sector contributes around 24% to the gross-domestic-product (GDP), employing around 72% of the population. This highlights a critical imbalance between the sector’s economic output and its role as the largest employer.
Despite a heavy reliance on agriculture for livelihoods, productivity and value addition in the sector remain low. However, the dairy sector persists as it contributes approximately $106.2 million annually despite the seasonal fluctuations in supply. Given Uganda's huge return on investment within the dairy sector, this has attracted active investors such as Delphos International. This firm facilitates investments and financing for projects that enhance agricultural productivity and infrastructure. It secured $35 million in financing for the Pearl Dairy Farms Ltd, Uganda. This investment is aimed at improving access to the raw milk market for smallholder farmers through improvements in transport systems in delivery trucks. Furthermore, farmers can invest in advanced technologies to increase production rates and deal with increased demand. This investment underscores growing investor confidence in the region’s agricultural and dairy sectors.
This investment is expected to have a substantial impact in Kenya, as a major consumer of Uganda’s dairy products. Uganda’s Pearl Dairy, the producer of Lato Milk, exports a significant portion of its products to Kenya. This creates a symbiotic trade relationship where Uganda benefits from the larger market while Kenya fills gaps in its supply chain. Furthermore, Uganda's membership in the East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) Customs Union facilitates dairy products trade with other member states. Meanwhile, other countries focus on exporting products in which they hold a competitive edge.
Best Sectors
According to the East Africa Economic Outlook 2024, agriculture, manufacturing, financial, and infrastructure sectors show the most potential for growth in Kenya, Tanzania, Rwanda and Uganda. This is due to due to several factors, such as technological advancements, increasing industrialisation, the proliferation of digital financial tools for inclusion, and an interconnected region because of significant infrastructure investments. The agriculture sector accounts for 25-40% of the EAC’s GDP and serves as the primary employer for over 80% of the population in the region. This year, the agribusiness sector closed the most deals and had the largest disclosed deal value at $238.4 million - with 15 deals being closed. Additionally, over 70% of the East African industries are agro based, with approximately 65% of intra-regional trade being agricultural products.
In second place was the manufacturing industry, with nine deals with a disclosed deal value of $229.2 million, followed by real estate at $227.5 million with three deals closed. The sector is set for substantial growth due to lower energy costs because of a growing renewable energy sector, accessibility of affordable capital, and a stable fiscal policy which provides investors with certainty. However, tapping into it would require a collaborative effort between the government and other stakeholders to foster a supportive ecosystem for investments. Its potential to drive economic growth is amplified by the region’s increasing shift toward renewable energy, which could significantly reduce energy costs—a major barrier to industrial expansion. Lower energy costs would make local manufacturing more competitive, increase production capacity, and attract further investments.
Overall, the dominance of these sectors in deal-making reflects East Africa’s economic priorities and growth potential. The agribusiness sector’s resilience and the adoption of new technologies have made it highly attractive to investors, highlighting its role as a critical driver of food security, employment, and export revenue.
Manufacturing’s multi-million-dollar deals signal increasing industrialisation aimed at reducing imports and boosting local production. This focus on industrial growth is vital for creating jobs and improving the region’s trade balance. Additionally, real estate’s significant deal value points to ongoing demand for infrastructure development, particularly in urban centres experiencing rapid population growth. These trends indicate investor confidence in sectors that support long-term economic sustainability and regional development, making them key pillars for future growth.
Worst Performing Sectors
The worst-performing sectors in East Africa’s are mining and education. This is due to factors such as limited infrastructure, inadequate investment, and regulatory challenges. The mining sector has been hindered by high operational costs and a lack of modern technology. Education faces issues of underfunding, insufficient facilities, and a skills gap. As of June 2024, there has only been one in the mining sector, at $5 million, whereas only two have been closed in the education sector, with an undisclosed deal value. The deals were driven by targeted investments focused on metal extraction in Kenya and Tanzania. In mining, the deal likely involved a partnership aimed at improving efficiency through new technology. In the education sector, the two deals may have been driven by innovations such as digital learning platforms or vocational training. These drivers - focused investments in technology, innovation, and sustainable growth - could attract more deals in the future. However, both sectors will need regulatory improvements, better infrastructure, and clearer returns on investment to become more attractive to dealmakers.
The mining sector has not made significant improvements this year due to challenges in demand uncertainty along with the supply chain dynamics. The infrastructure deficits in the industry led to significant challenges in regulatory delays and increased costs of production due to inefficient machinery. Moreover, within the education industry, many East African governments face budget constraints, leading to lower investment in the sector. Most of their budgets go towards other sectors – healthcare and agriculture, leaving a smaller budget for education. To address budget constraints, the governments should strive to explore alternative funding sources, such as public-private partnerships and international donor support.
Additionally, due to low Return On Investment, long payback periods, limited scalability, and high upfront costs, investors may prioritise other sectors that provide higher profits. Education assets require significant investment with delayed financial returns, making them less attractive to dealmakers. To address this, governments and private stakeholders are beginning to prioritise investments in both sectors. In mining, partnerships for technology transfer and improved regulatory frameworks are expected. In education, there is a growing focus on digital learning solutions and increased funding to improve quality and access.
What Next?
The East African economy is predicted to grow by 5.1% in 2024 and 5.7% in 2025 due to improvements within the service, tourism and transport sectors. The region is prioritising these areas, aided by increased financial and artificial intelligence (AI) literacy. Improvements in financial literacy have been marked by the proliferation of digital financial tools, such as mobile money platforms like M-Pesa, Tigo Pesa, and Airtel Money. Alongside this, have been educational programs and partnerships between governments, NGOs, and private sector entities. Furthermore, AI literacy improvements have been driven by increased access to digital education and upskilling initiatives. As the manufacturing sector becomes more capital-intensive, more workers are gaining technical skills that equip them to work in the service industry, leading to an increase in labour supply. The tourism sector had a 62% recorded growth in tourist arrivals post-COVID-19 due to government efforts to promote tourism through implementing effective health and safety protocols. The foreign earnings from tourism significantly increased and are expected to rise to $1.8 billion in 2024.
As a result, the countries are investing in transportation infrastructure to reduce travel expenses and attract more tourists. In summary, as these sectors continue to evolve and integrate innovative solutions, they will drive further development, attract increased investment, and contribute significantly to the overall economic prosperity of the region.