EAC FDI Rise Amid Global Uncertainty

The East African Community (EAC), a union of seven nations, encompasses some of the most densely populated and resource-abundant countries in Africa. With a combined GDP of $305.3 billion in 2021, projected to reach $346.17 billion in 2023 according to the latest IMF forecast, a population exceeding 300 million by some estimates, and a strategically advantageous geographic location, the EAC emerges as an enticing investment destination.

The region boasts ample resources, including confirmed oil reserves in Uganda, liquefied natural gas (LNG) in Tanzania, copper in the Democratic Republic of Congo (DR Congo), as well as cobalt and nickel deposits in DR Congo and Tanzania. The list of minerals within the EAC is extensive, spanning LNG, copper, cobalt, nickel, diamonds, coal, gold, iron ore, oil, titanium, and zirconium. These factors create a strong foundation for economic growth, further enhancing the appeal of the region to investors.

Notably, the East African region experienced an increase in investment inflows in 2022, despite a challenging global economic landscape aggravated by the Ukraine conflict and rising inflation. According to the World Investment Report 2023, the region witnessed a 9% rise in foreign direct investment (FDI) inflows, reaching $3.8 billion.

Within the EAC, the Democratic Republic of Congo remains the primary FDI destination, although it experienced a slight dip in investment inflows in 2022, dropping to $1.85 billion, a 1% decrease from the $1.87 billion recorded in 2021. Uganda, on the other hand, saw FDI inflows surge by 39% to $1.5 billion in 2022, making it the second most attractive investment destination in the region, followed by Tanzania, which experienced an 8% increase, reaching $1.1 billion.

Burundi has historically received the lowest FDI inflows in the EAC region since 2016, but there was a modest increase in 2022, with FDI reaching $12.88 million, up from $9.93 million in 2021.

The following is a summary of FDI trends in EAC member states from 2001 to 2022, based on the World Investment Report 2023:

Democratic Republic of Congo (DR Congo): Despite a decrease in FDI inflows in 2022, DR Congo remains a leading FDI destination in the EAC region, primarily driven by the mining sector, especially due to rising cobalt prices driven by increased demand in smartphones and electric car batteries.

Uganda: FDI inflows to Uganda rose by 39% in 2022 to $1.5 billion, and this growth is expected to continue with the approval of the $5.0 billion East African Crude Oil Pipeline project in early 2023.

Tanzania: Tanzania is among the top recipients of FDI in Africa, and it experienced an 8% increase in FDI inflows, with investments predominantly directed toward the manufacturing, mining, and energy sectors.

Kenya: FDI flows to Kenya declined in 2021, reaching $448 million, but it remains a significant FDI destination in Africa, with investors from the United Kingdom, Mauritius, the U.S., South Africa, and France.

Rwanda: FDI flows in Rwanda decreased in 2021, reflecting the global economic impact of the COVID-19 pandemic. However, the government is actively seeking to attract more FDI by offering tax incentives and other benefits to investors.

South Sudan: FDI inflows in South Sudan increased from $67.5 million in 2021 to $121.5 million in 2022, with a focus on the oil and gas sector and some investments in agriculture, mining, and infrastructure development.

Burundi: Burundi has the lowest FDI inflows in the EAC region but saw a slight rise in 2022. Investment is predominantly in the agriculture, mining, and services sectors, with Belgium, France, and China among the main investors.

Expectations are that ongoing structural reforms, economic openness to private investment, and integration into the East African Community will further boost FDI inflows in Burundi.