Scales gradually tilt against Kenya in regional economics

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By David Wanjala

Over the years, Kenya has enjoyed the title ‘king of East Africa’, which has helped the country grow as it attracts more and more investors compared to its neighbours. The title saw Kenya chosen over  Tanzania, Uganda, Rwanda and Ethiopia whenever international institutions and multinational organizations looked to host important conferences in the region.

However, recently this has changed as the economies of Rwanda and Ethiopia have sustained an upward trend placing them among the fastest growing economies in the whole of Africa. As a result, this has seen Ethiopia overtake Kenya and become the new king of the East African region according to the World Bank. The GDP of Ethiopia as of 2016 stood at Sh7.27 trillion ($72.37 billion) compared to Kenya’s Sh7.09 trillion ($70.53 billion).

Investors are now shifting towards Ethiopia, which is now attracting the largest portion of the Foreign Direct Investment (FDI) coming to Africa. According to UNCTAD, Ethiopia’s FDI inflow in 2017 stood at Sh363 billion while Kenya only received Sh67.7billion.

As a result of increased investments, Ethiopia has focussed much on development. For instance, the country has long been using the port of Djibouti to export and import products, in order to reduce the costs incurred and to speed up the time taken to move the products, the country built the first fully electrified cross-border railway line in Africa.

In addition, Ethiopia recently ended its feud with Eritrea and opened up a multitude of opportunities for the fast growing economy. This, ultimately, is not good news for Kenya as the handshake between the two presidents has put a doubt on the agreement that Ethiopia had with Kenya on the LAPSSET corridor.

The corridor, funded with billions of Chinese loans, bears Kenya-Ethiopia dream for a giant port in Lamu to serve Addis by road and rail. However, as has been argued elsewhere in this publication, will Ethiopia, with access to the Eritrean ports just a stone throw away still need the Lapsset Corridor?

If Ethiopia pulls out, Nairobi is screwed up. It will be left to bear the cost of a loan for a project whose commercial viability will have dwindled to near zero. Combine that with the pull out to Tanzania of Uganda on the oil pipeline project with the same effects on Kenya and you are staring at a not so good economic scenario.