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Countries and markets review 1/2023: Emerging economies Kenya and Tanzania are the gateway to the East African export market
Within ten years, glass palaces have risen in Nairobi, the capital of Kenya, and the city is teeming with life.
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Only about one percent of Finland's exports go to Sub-Saharan Africa. However, the East African countries are more approachable destination countries for Finnish exporters than the French-speaking countries of West Africa. Even these countries cannot be advertised as easy operating environments, and as always, finding good partners is the key to a successful business. In the East African economic growth countries of Kenya and Tanzania there is demand for Finnish technology and know-how. Finnvera can guarantee exports on a case-by-case basis.
Kenya's economy is growing after the pandemic
Kenya is the business center of East Africa, a diverse and dynamic economy and thus a natural starting point for the East African market. The financial and economic heart of the region is the capital city of Nairobi, where Nordic export promoters and development financiers have also settled. The Nordic countries aim to benefit from synergy, and therefore Business Finland will move under the same roof with Business Sweden, Innovasjon Norge and Enterprise Estonia. There are many export transaction under negotiations, especially to Kenya.
After the Covid-19 pandemic, Kenya's economy has grown rapidly. However, the negative effects of the pandemic and inflation have increased public sector spending. The increased public debt, which is up to 68% of the gross domestic product, and keeping debt service expenses under control are becoming a concern.
In African terms, democracy and legislation are on a strong foundation, and they have been built based on the "case-law" tradition of Great Britain. A model has also been taken from Great Britain in that sense, that legal support is required to handle even the smallest matter, which companies operating in Kenya should be prepared for.
In September 2022, Vice President William Ruto won the presidential election, beating opposition leader Raila Odinga by a narrow margin. The victory was narrow, but the opposition accepted the result and election violence was avoided. The risk of corruption is high in Kenya. Contracts signed during the tenure of former President Uhuru Kenyatta will probably be investigated from a corruption point of view, so, in any case, corruption will be dealt with.
Tanzania's development potential can open up with the new administration
Tanzania is Finland's long-term partner country in development cooperation. Tanzania has amazing natural resources: minerals, gas and fertile land. Agriculture is still the backbone of the economy, but agriculture is not seen as a business, but as a way to feed the farmer's own family. Not much value added is produced in Tanzania.
Tanzania could feed the entire continent, but the country is still dependent on food imports. The country's population is around 60 million and growing rapidly. The crises that are plaguing the entire globe – Covid-19 and the war in Ukraine – have also been felt in Tanzania, but the outlook is cautiously positive. The economy is on the path to growth and the national debt is at a manageable level, i.e. 37% of GDP.
Practicly Tanzania has a one-party system. The regime in power sets the pace. The current president Samia Suluhu Hassan came to power from the position of vice president after the death of his predecessor John Magufuli. Magufuli was a controversial figure, as he was a corona skeptic who was rumored to have died of corona disease. However, he initiated several projects to improve basic infrastructure.
The female president from the island of Zanzibar has continued to develop the country for the better. Foreign investments are wanted - roads, ports, electrification, telecommunications networks are in need of additional investments. The current administration asserts its urge to develop the business environment. In practice, taxation, corruption and bureaucracy still stifle business activities and foreign investments to some extent. The level of education of the people is weak, and the lack of skilled labor can become a bottleneck on the country's development path. The development potential has not yet been fully utilized, and the direction may change when the administration changes.
At the turn of January-February 2023, Finnvera participated in the Team Finland visit to Tanzania and Kenya led by the Minister of Economic Affairs, Mika Lintilä, in order to promote the export and internationalisation of companies. The visit was accompanied by a business delegation from the fields of education, digitalization and environmental technology. With the help of the minister, doors were opened in the direction of representatives of both ministries and the private sector. In the picture, from the left, Nina Kopola, CEO of Business Finland, Mika Lintilä, Minister of Economic Affairs, and Pirkka Tapiola, Ambassador of Finland to Kenya, opening the new Business Finland Office in Nairobi.
Under these conditions, Finnvera can guarantee exports to Kenya and Tanzania
Finnvera's ability to cover risks related to companies' exports is based on country risk classifications and country policy. Kenya and Tanzania are both countries with restrictive cover policies. If the payment period is 2 years or more, Finnvera assesses on a case-by-case basis whether the credit risk related to the transaction can be reduced with securities or other collateral.
In transactions with a short payment period, a letter of credit is the recommended payment instrument. In order for Finnvera to be able to directly insure the export company's buyer-customer, the company must be locally strong. For both countries, so-called PIF loans (Public Sector Investment Facility) can be considered. These loansa which combine a grant element from the Finnish Ministry of Foreign Affairs' development cooperation funds and the credit granted by a bank. In the PIF arrangement, Finnvera’s role is to guarantee the credit risk for the bank.
Finnvera's new export credit for the buyer can be granted to Kenya. Read more about Finnvera's Export Credit.
The author:
Eeva-Maija Pietikäinen is the Head of Finnvera’s country risk management team that monitors countries and country policies at Finnvera.
More information about the Team Finland network and services.
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