The African Development Bank’s 2023 East Africa Economic Outlook forecasts that growth in the region will surpass 5%. Hence, the region is positioned to enjoy strong economic performance this year, despite global economic headwinds and regional challenges.
This upward trend is expected to be spearheaded by countries such as Rwanda, Uganda, Ethiopia, Kenya, Djibouti, and Tanzania, with significant contributions from their services sector. According to the report, this region will be the fastest-growing in Africa – and the region with the most opportunities for innovators to capitalise during a period of rapid digital transformation.
Eastern Africa – a seedbed for growth
This positive outlook is a combination of a number of factors, among them, geography. East Arica, is a critical gateway to international trade, in close proximity to the Middle East, Red Sea, and Asia.
This geostrategic advantage has recently been amplified by the World Bank’s significant backing of a groundbreaking initiative to create a unified single digital market across the region. The $130 million project, dubbed the Eastern Africa Regional Digital Integration Project – II (EARDIP-SOP-2) is taking an innovation-first approach with potential for revolutionary yield.
Used effectively, this scheme has the capability to bring an end to Eastern Africa’s digital deserts, empower entrepreneurialism in communities, and unlock economic opportunities for millions.
Alongside meaningful training in financial and business skills, this investment will build market confidence and trigger subsequent foreign direct investment to the region. As it stands, the EARDIP-SOP-2 is poised to attract an estimated $30 million in private investment, making for a dynamic ecosystem for digital growth and prospective seed funding for new businesses.
There are several important factors that make East Africa ideal as a base for digital acceleration. With tech enabled payments growing rapidly in popularity, mobile phone usage at record levels, and a concerted effort from both local governments and international organisations to turbo-boost the pace of change, there is no doubt of the phenomenal economic opportunity in the region.
A tech-first approach
A continued path to growth must put technology centre stage. Broadband access is a key regional challenge; fibre optic infrastructure is limited, hampering digital progress. Seamless broadband underpins major global tech hubs and economies. Countries such as Somalia and Djibouti are set to undergo a significant levelling up of broadband connectivity, capacity, and affordability.
In turn, this will foster cross-border data flows and subsequently deeper regional integration and national inclusion. Funding must be in tandem with skills training to develop crucial skilled talent needed for a thriving tech ecosystem.
Eastern Africa has a young population – essentially an untapped reservoir of young, prospective talent. A growth in the number of STEM graduates is important for the region. The ICT sector predominantly offers high-skilled employment with wages substantially higher than other subsectors. The scheme must be underpinned by inclusivity. Empowering diverse communities has the potential to bridge social divisions and encourage regional prosperity.
Infrastructure efforts are already making great headway. Kuwait headquartered network provider, Zain Group, announced an investment of $800 million into its mobile service provision in Sudan over the course of five years. Equinix has also announced its intention to invest $390 million in building data centres in Africa over the next five years, with the digital infrastructure company noting that they will be exploring opportunities in East Africa. These private sector-led initiatives are an encouraging indicator of the current appetite for investing in the region.
Fintech is also in pole position to accelerate digitisation. Fintech fosters financial inclusion – removing friction with payments and deconstructing the barriers to personal finance management. African countries can take specific steps to improve and expand their startup ecosystems by increasing the sectors that startups play in, prioritizing Fintech because of its multiplier impacts – 49% of new investments in 2022 were made into fintech startups.
Djibouti as a regional financial hub
There are intricacies of each nation that contribute to the economic potential in East Africa. Take Djibouti – with its extensive undersea cable infrastructure, the nation is equipped to support broader regional data centres and increased consumer connectivity. The Djibouti government holds bold ambitions to serve as a financial and technological hub for the wider region and is working hard to attract foreign investment into other key sectors to diversify the economy.
As a politically-stable state with free movement of capital and a currency that is pegged to the US dollar, the nation is primed to effectively serve the region as a financial hub. The banking sector has grown in recent years from just two banks to thirteen, with more competitors set to arrive soon, expanding the financial services offered to regional partners. The Central Bank of Djibouti has strengthened the regulatory environment and made considerable efforts to improve credit allocation to the wider economy.
The growing capabilities within both Ethiopia and Djibouti are set to benefit burgeoning nations such as South Sudan, providing the digital financial infrastructure needed to overcome barriers to financial inclusion on a local level.
A framework for a vibrant future
Ensuring that the Horn of Africa is open to business is a global issue. The EARDIP-SOP-2 will create opportunities for East African countries that have been plagued by broken systems for too long. Used constructively, this is a game-changing initiative to get Eastern Africa on the digital grid for good, whilst establishing the region as a hotbed for investment. The history of the region means the stakes are high, but this potential investment is a welcome catalyst for sustainable growth in a region that most certainly deserves change – now more than ever.
Article by Kirsten Wortmann, Regional Director for Africa, Paymentology
