More Stability and Growth Ahead for Kenya and Uganda

January 7th, 2009

More Stability and Growth Ahead for Kenya and Uganda

A region which has traditionally been known for a significant amount of turbulence, both politically and militarily (especially underscored by the recent pirate activity off the cost of neighboring Somalia), is planning a railway project which might infuse a substantial amount of stability to the region. According to a NYTimes article published today entitled: “Kenya: 2 Countries Plan Railway,” Kenya and Uganda “plan to build a new railway from the Indian Ocean port of Mombasa to cope with increased trade among the East African countries and their landlocked neighbors.”

According to the article, “The two countries are now served by a meter-guage track built at the turn of the 19^th century and officials say it carries less than 6 percent of freight destined for Kenya’s interior and countries in the region.” The project was underscored when local violence disrupted trade between East African countries, in addition to the current transportation methods severely under-serving current demand (which is expected to grow significantly in the future).

Despite being in the same region, the Ugandan and Kenyan stock markets have performed quite differently in the last year. According to Emerginvest’s Ugandan Country Page, the market actually climbed for a better part of last year – posting an astonishing 40% return in the first 6 months (jumping from 823.56 Uganda Shillings to 1162.0). However, the hyper-inflated growth, coupled with the global downturn sent the market spiraling to approximately the same level it was a year ago, or back to 780.45 Ugandan Shillings. That being said, the market seems to have bottomed out, rebounding from a low of 663.94 UGS, and with a 52-week loss of only 5.23%, it actually makes it one of the best markets in the world to have invested in for 2008 (compared to 20-50%+ losses of most developed countries).

Uganda’s sea-bordering, Kenya, has East Africa’s largest economy with a GDP of $22.8B. With a much more stable stock exchange in Nairobi, Kenya’s market index lacks the volatility of Uganda but has posted returns more in-line with the rest of the world for the past year, bottoming out at -33.8% 48-week return in late November. However according to Emerginvest’s Kenya page, Kenya has since been steadily rebounding, jumping from 3160.12 to 3624.00 in the last month alone, or 14.68% (including a 4.74% gain last week). Even with a year-return of -24.2%, Kenya is still ranked as the 17^th best performing country in the world according to Emerginvest, out of the 90+ it covers (considering that the UK was the best performing developed country with “only” a loss of 27.07%).

Between the relatively good performance of both Uganda and Kenya in the last year, in addition to the upcoming rail project which should drastically help with stability for basic freight and trade in both countries, East Africa might be one of the significant growth regions in the next few years. According to InvestingInAfrica.net and the World Bank, Kenya will have annual growth rates of 3.7% and 5.9% in 2009 and 2010 respectively. Similarly, they predicts that Uganda will post 5.9% and 7.6% growth for the same time periods.

For additional information regarding the Ugandan or Kenyan markets, please see the Emerginvest website. In addition, Ryan Shen-Hoover’s “Investing in Africa Newsletter” is one of the top authorities on African company and market analysis and is highly recommended for anyone interested in investing in Africa.

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