The 5th East Africa Investor Conference focusing on re-evaluating traditional investment approaches has identified some of the challenges causing low investment rates in the continent.
Some of the challenges identified include high fertility rate, corruption, lack of enough electricity and small banking systems resulting to high interest rates.
The Renaissance Capital Kenya CEO, Stanley Kariuki said that even in the face of these challenges, Kenya’s economy has grown tremendously over the last years because of significant political, structural and economic reforms that have largely driven sustained economic growth and social development.
“Despite the steady growth in the Kenyan economy, other challenges pulling us behind include inequality, climate change and exposure of the economy to shocks in the global markets,” said Kariuki.
The CEO further explained that economic growth in Africa today is currently driven by traditional sectors adding that the recent petro-chemical factor in East Africa has given Kenyan a chance to join the league of oil producers.
“Even as we continue to enjoy the fruits of this sectors, we must address the key challenges we still face by rethinking about our investment models, building sectors that can help eradicate large scale poverty and help shelve the economy from shocks through Economic, Social and Governance (ESG) approach which will generate greater benefit for the African continent,” explained Kariuki.
Kariuki noted that it is evident that the inclusion of the ESG approach into the investment will lead to the improvement of business and economic performance.
Speaking at the Conference held in Nairobi on Wednesday, the Renaissance Capital Global Chief Economist, Charles Robertson noted that lack of enough electricity is dragging Kenyan behind, adding that the cost of setting up electricity in Kenya is very high.
Robertson noted that one of the reasons Kenya’s investment is not growing is because interest rates are too high and when interest rates are double digits its investments are expensive.
“For example Morocco, interest rates are about three percent while the investment is 34 percent Gross Domestic Product (GDP). That is what you need to run a big infrastructure,” he said.
He further said that Kenya is at 31 percent of lending to the GDP as compared to that of Morocco which is at 93 percent adding that high lending tends to bring down interest rates thereby attracting high investments into expensive fields like electricity.
Robertson explained that for a very small banking system, 20-40 percent of GDP, one has a huge dispersion in real interest rate but as the banking system gets bigger the real interest rate dispersion gets narrower until it approaches around zero percent.
In attendance, the Central Bank of Kenya, Dr. Patrick Njoroge said that “if we are looking for investments or being part of the big picture we have to look at Africa and see what is there”.
“We need to realize that we have to cooperate and work together. A good example is the Continental Free Trade Agreement that was signed recently and has become effective in July. This is the 2nd largest agreement in the world,” Njoroge said.
By Lucy Wambui/ Pauline Okenga