The handshake between Ethiopia and Eritrea makes Lapsset obsolete :: Kenya

Ethiopia is on the rise.

Under the leadership of the new Prime Minister, aged 41, Abiy Ahmed, the Horn of Africa country with over 100 million people is on the hegemonic path.

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And what Mr. Ahmed did during his first 100 days in power, including the opening of the economy and the re-establishment of diplomatic relations and Political freedoms such as the release of political prisoners and predecessors have made prisoners over the past 25 years.

The Prime Minister, who succeeds Hailemariam Desalegn after his unexpected resignation in February of this year, is the president of the Ethiopian People's Revolutionary Democratic Front (EPRDF) and the Oromo Peoples Democratic Organization, which is the most 39, one of four coalitions. parties from the EPRDF.

And when the dust settles on the reforms that Ethiopia undertakes, Kenya could be the biggest winner as well as a big loser.

Local firms are optimistic about finally putting one foot or more into the gigantic market that they have soiled for years but that they have kept out of state protectionism and of the communist administration.

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"The arrival of Prime Minister Abiy Ahmed, whom I consider the most consistent arrival of any African politician – at least since Mandela in 1994 – has opened the door wide. "This is a unique opportunity for Kenya Inc. to enter this basement market," said Aly Khan Satchu, a financial badyst.

Ethiopia could also compensate for the decreasing fortunes in South Sudan that have been engulfed by an endless civil war for years, despite huge investments by Kenyan businesses in the nation.

Safaricom and KCB Group appear as leaders and talked about implementation plans. "The banking sector will also open and I expect a rise in capital markets activities, the launch of a stock market and a high concentration in the Ethiopian diaspora." KCB is therefore right to be ready to plant the KCB flag, "Satchu said. .

"Basically, there are opportunities everywhere I look.The thing is, you will need endurance and power."

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The changes that are occurring in the country could be painful for some Kenyan players. This includes the Lamu Port South Sudan-Ethiopia Transport Corridor (Lapsset), whose megaprojects should allow Ethiopia to access Lamu's proposed port.

The integrated transportation corridor that includes a pipeline of refined petroleum products, roads, and railways is expected to open up northern areas of Kenya where the government has so far invested little in infrastructure. It is also expected to link Kenya to Ethiopia and South Sudan, hoping to deepen trade between the three countries.

But relations between Ethiopia and Eritrea, icy since the secession of Ethiopia in 1993 and blocking Ethiopia's access to the littoral, have reheated and could hinder Lapsset's ambition to offer the country access to a port.

Meanwhile, Ethiopia relied heavily on Djibouti and hoped that Lamu would give it access to another port, notably to serve the southern regions.

After the truce with Eritrea, she will now have access to the port of Asmara, which adds to Djibouti. The country also plans to work closely with Somalia to establish a similar corridor, questioning the components of Lapsset that originally hoped to serve landlocked Ethiopia.

Mega Infrastructure

A few months ago, the Lapsset program seemed like a sure thing. The multi-billion shillings project, launched during the administration of former president Mwai Kibaki, was to open up northern Kenya as a sure way to boost the economy.

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With the leaders of the region, it was agreed that the mega-infrastructure project was needed and that for Kenya, it meant a foothold in the populous northern neighbor. But things did not unfold as Kenya had envisioned as a result of the unexpected truce between Ethiopia and Eritrea that dramatically changed the landscape.

"I must admit that from a geo-economic standpoint, our advantage has eroded.The loss of the Lake Albert Total Kenya pipeline and the beginning of what could easily become a slippery slope. Clearly, Djibouti is a big loser now that Prime Minister Ahmed and President of Eritrea, Isaias Afwerki, have kissed and reconciled, "said Mr. Satchu.

"However, our advantage of the state of transit (we were once the undisputed road to the sea for ourselves and at least 13 countries) is eroded at high speed." Lapsset, for example, was based on a lack of options in the Horn of Africa. "

The LapseTech Corridor Development Authority (LCDA), however, downplayed these fears even as general manager Silvester Kasuku met with officials of the Ethiopian Maritime Authority in an effort to obtain a continuous support for Lapsset.

"We have a team headed by our chief executive currently in Ethiopia meeting with the Maritime Affairs Authority … there should be a detailed report (after the visit)," said LCDA in a statement.

He stated that the port of Lamu will be strategically located to serve southern Ethiopia, even when the country has access to Eritrean and Djiboutian ports.

"Ethiopia and Kenya have signed bilateral agreements regarding the Lapsset pipeline, road links, railways and Lamu port.Southern Ethiopia and the Park Hawbada industrial will be served by these infrastructure projects.Our project will be overdriven, "said the authority.

"Being the second largest port in Africa and serving as a transshipment port, we are monitoring the international shipping and logistic trade, we are also establishing special economic zones and industrial parks to make sure that our main Export port exploits all the country's resources for export. "

Foreign investment in Kenya could also take a hit. Ethiopia, which is already a favored destination for international investors and absorbs more than half of foreign direct investment (FDI) in East Africa, could see its share rise even further.

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A liberal economy, a huge local market, cheap electricity and geographical advantages almost similar to those in Kenya, Ethiopia could make it more difficult international investment from other EAC countries.

Three months after the start of his tenure, Ahmed led a series of political and economic reforms that set the country on the path of being Africa's leading power and economic hegemony .

Safaricom was the first to reveal its intention to venture to Ethiopia and capitalize on the reforms. The airline announced last week that it was going to transfer its M-Pesa mobile money service to Ethiopia via a partnership with an Ethiopian bank and Ethio Telecom.

Safaricom said it was in talks with the Ethiopian government to introduce mobile money service in the country.

The Prime Minister then confirmed the report on his Twitter account. "Ethiopians may soon benefit from Kenya's Safaricom M-Pesa services," Ahmed said last Tuesday.

M-Pesa would be competing with relatively new competitors in the Ethiopian mobile money space – helloCash and M-Birr. "If confirmed, this is an important plus point for Safaricom, and would offer a significant advantage over M-Pesa's revenue growth figures based on the 100 million market subscribers in Ethiopia. ", said Standard Investment Bank. "The upside potential could be higher depending on the share of the revenue traded – but it is unlikely that it will account for substantially more than 15% of revenue (unless the use is low). "

The KCB group said Thursday that it was also planning to start operations in Ethiopia.

Both companies are banking on a near-virgin growth market, where, despite the size of the country, its financial services sector is relatively underdeveloped.

Kenyan manufacturers are also looking north, with the hope that the changes will allow them to increase the volume of exports to the country, with some badessing the possibility of locating there.

Among the attractions to be set up in Ethiopia is electricity, which is cheaper, where users pay Sh6 per kilowatt hour (KWh) on average compared to Sh16 in Kenya. "Kenya has entered into a special status agreement with Ethiopia in 2012 aimed at improving economic cooperation between the two countries." The agreement gives Kenya access to certain restricted areas of the country. Ethiopian economy, "said Standard Investment Bank. "The pace of reforms undertaken over the last three months by Abiy Ahmed is expected to further boost the activity of the private sector in the country."

Kenyan manufacturers will consider expanding their exports to the country and setting up factories because of the large market and low production costs due to low power. Over the past four years, imports from Ethiopia have increased tenfold, from 278 million shillings in 2014 to 2.1 billion shillings in 2017, according to data from the Kenya Bureau of Statistics. (KNBS).

Kenya's exports, however, remained stagnant and in some cases fell. Kenyan exports reached 6.9 billion shillings last year, down from 8.1 billion shillings in 2016.

Modest Growth

In 2014, Kenya exported 4.9 billion shillings to Ethiopia, a modest growth over the four years compared to the growth rate of imports.

"We are eager to get the market share but the catalysts must be there.Eliopia remains competitive mainly because of its cheap electricity," said Job Wanjogu, director of politics, research and advocacy at the Kenya Manufacturers Association (KAM). Among the areas in which manufacturers are hoping to make the most of food.

KAM says Ethiopia imports drinks from South Africa and yet Kenya could easily meet that demand. Wanjogu added that the Kenyan private sector could invest in Ethiopia, consolidating its position as the main source of FDI in the region. Kenya is a key source of FDI for other countries in East Africa.

"If our manufacturers can align, there are tremendous opportunities.When you look at what they export to Kenya, there are many areas where Kenyan companies have the # These include pesticides, rubber tires, prefabricated building materials and lids and caps for containers, "he said.

"There, however, hides the danger of Ethiopia being a manufacturing facility and exceeding Kenya's industry.

This is already reflected in the growth of imports from the country, while Ethiopia continues to operate in a closed economy while Kenya's exports stagnate. "

Opening to builders could slowly tip the trade balance in favor of Ethiopia.

While settling in Ethiopia could mean exporting jobs, Wanjogu noted that these would be investments that would give Kenya dividends.