East Africa: Big gains for Kenya’s giants

East African Breweries is now the biggest company in Eastern Africa, with a market value of $2.8bn, up from $1.6bn last year. The brewer, which wholly owns Kenya Breweries and Kenya Maltings, has subsidiaries in Uganda and Tanzania, and exports its products to most of the rest of Eastern Africa. Telecoms operator Safaricom has enjoyed even more spectacular growth over that period, from $1.3bn up to $2.8bn, just behind East African Breweries.

Safaricom, which is 40% owned by Vodafone Group, recorded a 39% increase in profits for financial year 2012–13 to KSh17.2bn ($201m), on the back of a 16% rise in sales to KSh124.3bn ($1.5bn). The company’s biggest area of growth is data revenue as smartphone and mobile internet use begins to take off, and the mobile banking sector continues to grow. Income from Safaricom’s M-Pesa service jumped by 30% to KSh21.8bn ($255m) from a record 17.1m customers, representing most of Safaricom’s 19.4m customers. As in many other African markets, the growth in Kenyan mobile penetration rates is slowing down as the market becomes saturated. The higher profits are also helping the company to pay down its debts. Chief financial officer John Tombleson commented: “Based on the dividends that we are paying and what we forecast our free cash flow to be for the next year, it is a fairly reasonable assumption that we will see zero debt in a year’s time.”

Last year’s top firm, Mauritius Commercial Bank (MCB), now falls to third place, well behind the two Kenyan companies. The company reported a 4.6% rise in nine-month pre-tax profits to the end of March to $122m, prompting a bank spokesperson to report: “This satisfactory performance is the result of a market and product diversification strategy.”

State Bank of Mauritius, which is ranked fifth in our regional table, with a market value of $1.2bn, posted an 18.3% rise in profits over the same period to $94m, suggesting that it is closing the gap on MCB. State Bank plans to expand the geographical reach of its operations but details of the plan have yet to emerge. The Nairobi Securities Exchange All Share Index gained 37% between 1^st January and mid-May this year, making it the world’s third-best-performing equity market over that time. Foreign investment funds have been particularly active in buying Kenyan stocks over the past year, accounting for 51% of all deals in 2012, up from just 9.8% in 2007. This underlines growing international confidence in the future of the Kenyan economy.

There are now 14 Kenyan companies among the top 25 Eastern African firms, up from 12 last year; and four from Mauritius, two fewer than in 2012.

Kenyan companies have the potential to appear much more prominently in our table. The domestic economy is set to grow by 6% this year; the recent presidential election passed off without the same level of violence as the 2007 polls; and the IMF predicts that oil production will come on stream within the next six or seven years. In addition, the benefits of the East African Community single market should start to feed through soon; new port capacity is under construction in Mombasa and Lamu; and power supplies should improve on the back of an import deal with Ethiopia and a 300 MW wind farm in the Lake Turkana Basin.

Yet much depends on the government’s strength in maintaining national cohesion and Kenya’s ability to cope if new president Uhuru Kenyatta is put on trial by the International Criminal Court on charges of orchestrating violence after the 2007 election. These are interesting times for East Africa’s biggest economy but a successful outcome is by no means guaranteed. Uganda still has just a single representative in our table: Stanbic Bank Uganda, with a market value of $494m, the same as last year. Tanzania maintains its record of six representatives achieved last year. Its biggest company, Tanzania Breweries, stays in 14^th position, despite a healthy jump in market capitalisation from $302m to $447m. With foreign direct investment rising and new gas projects under development, Tanzania looks set to maintain economic growth of 6% a year for the foreseeable future and it would be no surprise to see more Tanzanian firms featuring in our table over the next few years.