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Mfumukeko: EAC Creating Fund to Bridge Infrastructure Financing Gap

The East African Community (EAC) is setting up a special fund to strengthen capacity of the local private sector to undertake key infrastructural projects in the region and boost Small and Medium-sized Enterprises.

EAC Secretary General Liberat Mfumukeko, who spoke Tuesday at the East Africa Business Council CEO Roundtable Breakfast Meeting at Serena Hotel, Nairobi, Kenya, said the fund will increase participation of private sector in the development of the region.

“Working with the Governments, African Development Bank, the World Bank, the European Union, and the Private Sector, we are designing an EAC African Development Fund to contribute to meeting this infrastructure gap, including through the mobilization of domestic resources,” said Mfumukeko.

“I urge the private sector to be the driving force of this exciting initiative,” he added.

Mfumukeko also revealed a multitude of opportunities the private sector should take advantage of to spark economic growth.

“These include Agro processing; pharmaceuticals; the chemical industry; manufacturing; mining; fishing; tourism; ICT and telecommunications; infrastructure development including enlargement of ports and harbors as well as inland waterways; and of course oil and gas,” said Mfumukeko.

“For instance, we need to greatly increase our energy generation from the current 4,000 MW to at least 40,000Mw in the next decade, including renewable energy and green technologies,” he added.

The EABC brings together business personalities from across the region.

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Mfumukeko also said the Technical Working Group (TWG) of EAC and the East Africa Business Council (EABC) is spearheading private sector development in the region.

“In taking advantage of the digital era, we hope in the next financial year we shall be able to commence the development of an EAC Buyers and Sellers Platform, an online platform that will provide a wider market for the EAC products. This is one of the initiatives being championed by the Technical Working Group (TWG),” said Mfumukeko.

“The EAC Secretariat and Partner States are also putting in place supportive frameworks that enable Small and Medium Enterprises (SMEs) to access financing and markets,” he noted.

The Secretary General, who recently met with the President of the African Development Bank (AfDB), said the latter was very keen in supporting private sector projects.

CEOs meeting with Mfumukeko in Nairobi

“He was specifically interested in supporting EAC Bankable Projects especially private sector projects with a regional reach to be presented in the African Investment Forum scheduled for November, 2019. I believe it is a good avenue to access long term financing and I urge you, the private sector, to take advantage of that,” said Mfumukeko.

Regional Trade

According to the EAC Trade and Investment Report 2017, Total EAC trade in 2017 grew by 8.6% to US$ 46.9 billion on account of increased imports and falling exports.

However, imports into the region grew by 19.5% to US$ 32.2 billion in 2017 while exports fell for a second consecutive year.

Exports from EAC in 2017 fell by 9.3% to USD 14.7 billion. On the other hand, intra-EAC trade grew in 2017, whereby intra-regional imports grew by 14.1% to US$ 2.5 billion while intra-regional exports grew by 8.1% to US$ 2.9 billion in 2017.

Nevertheless, intra-EAC imports and exports accounted for only 7.7% and 18.7% of total imports and exports respectively, signaling that intra-regional trade constituted a small proportion of total EAC trade in 2017.

Mfumukeko said SMEs represent the larger part of all the registered entities in nearly all the EAC Partner States hence the need to support them.

“Accounting for 60% of all registered entities in the region but only a few of these firms will grow into medium and large sized firms due to challenges such as inadequate financing and access to financial services. This is one of the areas that we need to urgently tackle together,” he added.

The EAC SG said the region is confronted by several of challenges that provide opportunities for the private sector.

“A relatively low level of financial deepening, lower levels of domestic savings, high reliance on donor aid, limited physical infrastructure, low levels of industrialization and limited human capital to name a few. The infrastructure deficit is estimated at US$ 43 Billion per year,” he noted.

Unemployment 

A study by UNDP in 2018 reported that the unemployment rate in the East African region stood at 80%, with Kenya on the lead at 39.1%, most of the unemployed being youth.

The Jua Kali sector in Kenya, however, employs at least 86% of the Kenyan workforce, and subsequently controlling 80% of the economy.

Mfumukeko said Uganda has the lowest unemployment rate in the region, at 18% which is attributed to the fact that most young people in Uganda have engaged in agriculture thus bridging the gap between job opportunities in the formal and informal job sectors.

A 2018 survey in GSM Association, a trade body that represents the interests of mobile network operators worldwide, established that there were 442 active Tech-Hubs on the African continent. However, out of the 442, only 46 Tech-Hubs are in the EAC region.

The Agriculture sector accounts for 25% – 40% of the EAC Partner States’ GDP and is a leading employer for over 80% of the population in the region.

Partnership

Mfumukeko said a continued and renewed partnership with the private sector is vital in achieving the socio-economic objectives of the community.

He gave examples of nations in Europe and Asia which have used the full force of government to attain commercial competitive advantage in industries they regarded as strategic such as China, South Korea, Germany, and Taiwan.

These countries target industries such as renewable energy equipment, solid-state lighting, electric vehicles, and next-generation displays with comprehensive strategies and generous subsidies.

Mfumukeko also said the public procurement legislation needs to address the benefits for smaller local subcontractors, when giant multinationals win the tenders in the region.

“In addition, we also need to give special procurement opportunities to women owned business in the region,” he advised.

Mfumukeko also urged the business community to embrace technology transfer to spur growth.

In June 2018, EAC signed an MoU with Google and Singularity University – a hi-tech incubation center based in the Nasa Ames Research Park in the Silicon Valley.

Mfumukeko said EAC succeeded in having young innovators from the region hosted for few months in the Silicon Valley and also undertook negotiations to have hi-tech innovation centers established in the EAC region.

“Discussions are ongoing with Oxford University who have already proposed degree and professional training programs to be offered in the region,” he said.

He also said EAC is planning for an EAC Business Summit, which will be an annual event to provide the private sector an opportunity to interact, share business opportunities and establish partnerships.

It is envisaged that the event will culminate into a Summit where the business community will engage with the Heads of States.

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