However, this rapid growth is not mirrored by most of Eastern Africa’s other large firms. Kenya’s NIC Bank needed market capitalisation of $188m to take 25th position in our 2013 regional table but the threshold for inclusion is just $125m this year. Kenya a favoured destination for African emerging markets’ investment but has few companies of sufficient scale to make it into the upper echelons of our table.
Nevertheless, economic growth is creating larger corporations that should figure in our table in the years to come. Indeed, the market capitalisation of companies listed on the Nairobi Securities Exchange (NSE) increased by 49.91% during the course of 2013 to KSh1.92 trillion ($22bn) driven by a 79.45% rise in turnover to KSh155.75bn ($1.8bn).
NSE chief executive Peter Mwangi commented: “In 2014 we see inflation more or less stable around 7% and we expect the Kenya shilling to depreciate gradually as it should over time, the current account deficit and fixed deficit will also remain manageable.”
Some companies should figure more prominently in our 2015 survey. For instance, the value of Kenyan power company Kengen increased by more than 50% in 2013. The power generating company faces a high capital investment bill over the next few years as it develops new power plants but the markets seem confident that it is in a good position to do so.
The comparative economic sizes of the three biggest economies in East Africa is closer today than in the 1970s when they last attempted economic and political union. The revamped East African Community (EAC) has certainly made more progress than its predecessor but our table reveals that Kenya still boasts the biggest firms in the region.
Out of our regional table of 25 companies, 18 come from Kenya, five from Tanzania and just two from Uganda. It is difficult to compare this year’s table with those from 2013 because of the absence of Mauritius.
We have decided to move the Indian Ocean island nation to the Southern African region because it was felt that it had stronger economic ties with the Southern third of the continent than with Eastern Africa.
Kenya plans another sovereign bond and a new derivatives exchange, but it is notable that the Kenyan bond market remains roughly evenly divided between foreign and local investors. This mirrors the situation on the Nairobi Stock Exchange, so any international retreat from emerging markets will not inevitably pull the plug on stock values.
Neighbouring Tanzania plans its first Eurobond issue this year and hopes to raise at least $700m. The Tanzanian economy is growing by an average of 7% a year but the government has struggled to rein in its budget deficit.
In the longer term, Ethiopian companies could make a bigger impression on our regional table. The country is in the middle of the biggest hydro construction programme ever seen in Africa.
National generating capacity is set to jump from 745 MW in 2009 to 10,000 MW by 2020. The power generated should help to drive economic growth, both within the country and in proposed export markets, unless the costs of construction bankrupt the government. However, much will depend on the extent to which the government deregulates state controlled markets.
Eastern Africa certainly has massive potential. It has the highest population growth rate of any region in the world and Kenya, Uganda, Tanzania and Ethiopia will all have more than 100m citizens by the end of the century. This is a huge potential market for investors if growth continues at its current pace and living standards begin to rise more widely. Yet all four governments must do more to encourage private enterprise, even in the face of World Trade Organisation (WTO) restrictions on protectionism.