Twenty years ago, Peter Thoms, founder and portfolio manager of Africa Capital Group, embarked on the journey of a lifetime that took him from Morocco to South Africa.
For several months, he traveled by boat, by train, by bush taxi and he hitchhiked, visiting 25 African countries along the way, including Kenya, which recently issued its first Eurobond.
That deal was 17 years in the making but could not have proved more popular, since Kenya succeeded in raising $2 billion in a hugely oversubscribed issue that the country’s president described as a huge “vote of confidence” for Kenya by the international investment community.
Thoms was recently in the Kenyan capital, Nairobi—which, he said, has changed beyond recognition in the past two decades—and he also visited Rwanda, which issued its debut Eurobond in 2013, one year before marking the 20th anniversary of the horrific genocide that ripped the country apart and claimed close to a million lives. Here’s what Thoms has to report on these two rising African nations:
Kenya Badly Needs Foreign Investment
Many investors who bought the Kenyan bond may have done so because it offers them yield in a world of low interest rates, but the popularity of the bond will no doubt encourage more foreign investment into Kenya—investment, Thoms said, that the country badly needs.
“Kenya has huge infrastructure projects on tap and if it is to continue sustaining a high level of growth, then it must invest heavily in infrastructure,” he said.
Today, Nairobi is a sprawling city that is “groaning under its current infrastructure” because it’s growing at such a rapid rate. The city and the rest of the country badly need to upgrade in all areas, not least the electricity grid, and there are huge plans afoot to move toward geothermal power and away from hydroelectric power.
“For all of this and more the Kenyan government is going to have to continue raising external funds and attracting investment, but the success of the bond bodes well for that,” Thoms said. “And if the Kenyan government wants to keep attracting external funds, then its ability to service its external debt will be important and probably the factor by which foreign investors will judge Kenya’s credibility.”
Security Concerns Remain
The World Bank recently lowered its forecasts for Kenya’s growth to 4.7% from 5.2%. That’s still impressive compared to much of the developed world, but there’s no doubt that security is a huge issue. Some governments have issued travel advisories for Kenya and earlier this year, the U.S. embassy in Nairobi repatriated some of its staff members as it beefed up security against the threat of attacks by Islamist militants.
There’s little doubt that the terrorist acts that have occurred in Kenya are having an impact on the economy, particularly on tourism, which makes up about 14% of Kenya’s GDP, Thoms said.
Nevertheless, “day to day life goes on there despite the security threats,” he said, and other industries such as manufacturing, financial services and telecommunications are now gaining importance. With greater investment, these will become even more important, he said, and perhaps even supercede tourism one day.
Determination of Rwandan People
Twenty years ago while on his African odyssey, Thoms was all set to visit the gorillas of Rwanda made famous by naturalist Dian Fossey. But just as he was getting ready to travel there from Kenya, the civil war erupted. He hasn’t yet seen the gorillas, but Thoms is highly impressed with everything else he saw on his recent visit to the Rwandan capital, Kigali.
“This is a very young nation and there’s a new generation of Rwandans who are determined to make something of their country,” he said. “There’s a huge level of enthusiasm for the future of Rwanda, and though it still faces a lot of difficulties – not least a dicey Western border and the fact that it’s a landlocked nation – I believe Rwanda has great potential.”
Between 2001 and 2012, Rwanda’s economy grew at a rapid pace of more than 8%, and poverty significantly reduced. Rwanda has not been able to rely on commodities like other African countries to drive growth, but it has been making a name for itself in other ways, notably in information technology.
All these factors helped Rwanda sell its $400 million Eurobond with speed and ease in 2013. Proceeds from the bond were used to fund large-scale projects including the country’s national carrier, RwandAir, and a large hydropower plant. Rwanda’s goal is to become a business friendly country, Thoms said, and the government has been making great strides in ensuring that happens in order to continue attracting much-needed foreign investment.