Delegates at the opening of the 2nd African Forum on Religion and Government by President Pierre Nkurunziza of Burundi on August 19, 2009, at Limuru, Kenya. Picture: Phoebe Okall
East Africa is often discussed in terms of its core three states, plus one — Rwanda.
This is largely because of President Kagame’s development initiatives. It is easy to forget the fifth member, to which Kenya Airways flies, and to which regional businesses are expanding, currently.
A Burundi delegation headed by President Pierre Nkurunziza attended the July 2009 EAC investment conference in Nairobi.
The group explained the various investment opportunities available in Burundi.
Burundi is investor friendly. A one-stop-shop investment promotion agency is to be established soon. New investment laws provide total freedom of settlement, transfer of assets, tax incentives and private property protection.
Commercial court proceedings and the business registry have improved. And a revenue authority has been created to manage public finances and harmonise tax policies with the East African Community.
The immediate focus is on privatising the coffee sector, but the government is also seeking private investors for energy, tourism, telecoms, sugar, banking and mining ventures.
As one Burundian trader says: Everything is broken. Everything needs to be fixed.
This is because the country is just emerging from over a decade of conflict.
Being a member of the EAC, Burundi’s economic rise will be faster. But the country still has huge hurdles to overcome.
The pressure is on Burundi to comply with a multitude of regional policies, and to participate in the EAC Customs Union, which it officially joined this year.
Integration also provides opportunities for more cross-border business, private sector networking, spillover knowledge creation, and attraction of foreign investors.
Burundi’s economy lags behind those of the other EAC states.
Hence integration will pose various challenges for the country: Investors looking at the EAC market as a whole will naturally want to invest where the cost of doing business and the risks are lowest, where the demand is highest and the resources are available.
Mining companies could tap Burundi’s mineral wealth, but the global crisis has made even this boldest of sectors more attuned to the costs arising from inadequate infrastructure and political risk.
Telecoms and banks have already moved into Burundi to exploit the nascent demand; but with just nine million people, the country’s market is relatively small.
And it lacks large-scale insurance provision and fiscal stability.
In the long-term though, some manufacturers may resist moving into Burundi.
Why set up a factory in the region’s least developed (and landlocked) state when you can open one in Kenya or Uganda and export into Burundi, they may argue? Ugandan manufacturers are already complaining of tough competition from Kenya’s more advanced industries.
And by 2010, exports to the region will be duty free under the Customs Union.
Initially, it will be difficult to establish industries in Burundi under a fully liberalised regional market.
The country is mainly a one-way market for EAC goods and services.
For instance, the country’s private sector complains that banks (including KCB, Kenya’s Diamond Trust Bank, and the pan-African Ecobank) have moved in but are reluctant to provide sufficient credit to support local business development.
Finance is a major challenge for the nascent business community, even as the nation itself recently qualified for Highly Indebted and Poor Countries (HIPC) debt relief.
Much of that money will go to public health, education, and rural infrastructure development.
Burundi has a few comparative advantages: The land is flat and fertile for agriculture, and has been marked by donor partners for development support.
Businessmen in Burundi’s small manufacturing community say competition from regional imports will be a big challenge, but they want to see the country carve a niche in coffee products and other agribusiness.
Burundi also has lots of white sandy beaches along Lake Tanganyika, where its capital city Bujumbura sits. Tourism will be one of the first sectors to attract significant outside investment.
Demand for accommodation is already high, largely from diplomatic and donor traffic, but also from KQ’s twice daily flights that bring in many traders. Bujumbura does not have any large hotel yet, but it will soon.
Burundi, like Uganda, is landlocked. This increases the country’s production costs, but also places it on an important trade route into the growing markets in DR Congo.
Work has already begun on a railway line that will link Dar es Salaam port to Kigali and on to Burundi.
Lake Tanganyika also provides a transit route into Zambia and Tanzania, which have been attracting the attention of regional traders.
Security is still of great concern in Burundi. But only for now. Many Burundians say they “cannot go back on the recent peace process”.
The most recent peace deal was in 2008, between the government and the last remaining rebel group — the Forces for National Liberation (FNL).
The group laid down its arms earlier this year. The World Bank will provide at least $15m to support the group’s demobilisation.
Some news agencies, however, say very few weapons have been submitted so far and that as many as 10,000 rebels may lack official demobilisation support.
This will not translate into more civil war, but it could compound basic security — a situation similar to Southern Sudan.
Now that the FNL rebel group has registered as a political party — to rival the ruling CNDD-FDD — there is hope for more democracy as the 2010 election draws near. Many say President Nkurunziza is young, energetic and likeable... but competition is nonetheless good.
In 2008, Burundi was classified by Brookings Institution as the fifth weakest state in the world — behind the DR Congo and Somalia.
Meanwhile, investors worried about long-term political risk can purchase insurance from the World Bank’s Multilateral Investment Guarantee Agency and the African Trade Insurance Agency, of which Burundi is a member.
Capacity in both the government and the private sector is low. Many Burundians learn English along with French from grade school, and speak Kiswahili.
But a language barrier still persists. The country’s education system requires major investment.
As the government, says everything is a priority; everything needs to be fixed. The public sector is overworked and under-qualified.
Inflation vacillates around the low double digits, and the national currency, the Burundi franc, has found it hard to stabilise, with the country dependent on coffee and tea exports for foreign exchange.
The global crisis has hit Burundi, with lower international coffee prices, fewer remittances, and possibly less aid money for its ambitious restructuring projects.
The country hopes to grow by at least 4.5 per cent in 2009, the same rate it achieved in 2008.
The International Monetary Fund has, however, revised this projection to 3.2 per cent.
The Fund says the country has made commendable progress on fiscal and structural economic reforms.
While the rest of the EAC is restructuring private public partnerships for infrastructure development, the World Bank has ruled this out in regard to electricity and water distribution in Burundi.
“Participation of the private sector in the management of REGIDESO [the state-owned utility service provider], appears unlikely, for now.”
Burundi has an electricity shortage of 25 MW during peak hours, which will need to be addressed.
So far, the World Bank and the African Development Bank have committed funds to rehabilitate hydropower production and distribution in the country. The Burundi government also hopes to invest $91m in the construction of two new hydro power plants.
Reforms that were recommended for the utility service provider in 2003 were derailed by conflict. The sector, like all others, are starting from scratch.
This article was first published by ratio-magazine.com.
