East Africa BriefingDecember 2014

November at a GlanceDecember 2014

Uganda, november 30: The Democratic Republic of Congo (DRC) prepares to repatriate former M23 rebels from Uganda, held under Kampalan oversight since combined DRC and UN forces crushed the M23 rebellion in 2013.

Burundi, novemBer 30: The International Monetary Fund (IMF) forecasts Burun-di’s economy to grow by 4.7 percent in 2014, 0.2 percent higher than the previous year. The news followed the announcement that the Belgium government had agreed to finance the construction a major hydro-agricultural dam on the Nyamagana.

RWANDA, NovembeR 26: The Rwandan Defense Forces deployed two additional helicopters to South Sudan as part of the UN Mission in the country in a sign of increasing participation in the year-long conflict.

South Sudan, november 25: President of the UN Security Council Gary Quinlan announces the UN’s will to advance targeted sanctions, including an arms embargo against South Sudan’s warring elites, following the expiration of the November 24 ceasefire deadline..

Djibouti, November 10: Djibouti signs $2 million in loan agreements with the World Bank as part of a strategy to speed up economic growth and boost job creation.

Somalia, November 16: Members of the Somalia Federal Parliament call for a vote of no-confidence in the incumbent Prime Minister Abdiweli Sheikh Ahmed, pro-voking a political crisis amid concerns of aid cuts by key multilateral donors.

MozaMbique, NoveMber 28: Mozambique signs a memo-randum of understanding with India for cooperation in the oil and gas sector, strengthening the South Asian nation’s exist-ing interest in the Offshore Area 1 of Mozambique’s Rovuma Basin.

Malawi, NoveMber 11: A second state employee, former accounts assistant Victor Sithole is sentenced to nine years in jail for embezzling more than $66,000 in the notorious “cashgate” scandal following fresh audits funded by the German government.

Tanzania, november 16: A group of Masai pasturalists torched an upmarket tourist camp in the Siha district of Tanzania’s’ Kilimanjaro region following a dispute about grazing rights with the camp authorities. No casualties were reported.

Zambia, November 26: Lusaka Mayor and son of the late President, Mulenga Sata, withdraws from the 2015 Zambia Presidential race, as 11 parties express their intention to field candidates in the race.

EritrEa, NovEmbEr 20: Representatives of the UN Agency for refugees reported more than 6,000 Eritreans claimed asylum in Ethiopia over the course of October as the government imposed conscription and food shortages accelerate the passage of migration from the country.

Kenya, november 22: Members of the Somali Islamist group Al Shabab hijacked a com-muter bus in the border district of Mandera, killing 28 of the vehicles non-Muslim passengers..

Ethiopia, NovEmbEr 17: Fitch group issues Ethiopia’s long-term foreign and local currency issuer default ratings (IDR) as a “B”, following improved economic growth and out perfor-mance of regional peers in areas such as infrastructure investment and external debt ratios.

Executive Summary

Regional OverviewDecember 2014

Key Trends•Insecurity increases in Kenya, with two mass casu-

alty incidents linked to Al Shabab in the northern province of Mandera.

•World Bank pledges $1.2 billion to boost East Afri-can infrastructure as international attention contin-ues to focus on the developing extractives industry in Uganda, Tanzania and Kenya.

•A peaceful solution to the civil crisis in South Sudan remains distant, as regional mediators continue to face politically motivated challenges.

•Record sales of £15 billion worth of African Euro-bonds in 2014 is boosted by Ethiopia’s first foray into the global sovereign market, in what is seen as a dis-play of economic maturity for Africa’s fastest growing economy.

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Reported Violent Incidents Source: EI data

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KenyaSecurity Situation Dramatically Worsens in KenyaInsecurity levels rose significantly in Kenya during late November and early December as Somali militant group Al Shabab strengthened their foothold in the country. Recent weeks have seen two mass

casualty attacks carried out by the group in the remote north-ern province of Mandera, near the Somali border, resulting in the deaths of 64 people, the majority of whom were killed for being non-Muslim.

On November 22 Al Shabab militants hijacked a bus traveling from Mandera to Nairobi, then separated out non-Muslim pas-sengers and shot those unable to read from the Koran. Ten days later the group launched a midnight attack on a quarry in Kormey, nine miles from Mandera town, executing 36 workers after again separating the non-Muslims from the Muslims. Mandera shares a long and porous border with Somalia and the area has been prone to insecurity for decades. Communities have often felt marginalised and neglected by the national government, and the ready availability of weapons from Somalia and southern Ethiopia, combined with poor infrastructure and high poverty levels, has made the region a fertile recruitment ground for Al Shabab.

However, current security challenges are not restricted to Mandera. Since 2011, when Kenyan troops were dispatched to Somalia to help fight Al Shabab, over 135 terror attacks have been carried out by the militants and affiliated groups on Kenyan soil, including the high profile Nairobi Westgate Mall siege in September 2013 in which at least 67 people were killed. While most other incidents have so far been small-scale and opportunistic, the group’s ability and desire to

Politics and SecurityDecember 2014

mount more complex attacks in Kenya seems to be grow-ing. As African Union (AMISOM) forces continue to reclaim Al Shabab controlled towns and territory in Somalia as part of their latest offensive, the militants seem to be shifting their focus away from Somalia and are seeking to heighten religious and sectarian divisions and incite violence in Kenya and throughout the wider East Africa region. The activities of Al Shabab affiliated Islamic extremist groups, such as Al Hijra (also known as the Muslim Youth Center), who are now the primary vehicle for domestic terrorism within Kenya, further raises the risk of insecurity.

The Kenyan government has been widely criticized for its heavy-handed and biased approach to tackling the vio-lence. Just three days before the Mandera bus attack, Kenyan police raided a series of mosques in Mombasa arresting 200 people and closing down four mosques. The incident is the latest in a long line of attacks on Kenya’s Muslim and Somali

community and many local Muslim leaders and youths responded with outrage. Following events in Mandera, Kenyan President Uhuru Kenyatta fired the country’s interior minister Jospeh Ole Lenku and accepted the resignation of his national police chief David Kimaiyo, the two men widely blamed for the failure to get to grips with the insurgency. While Kenyatta’s nomination of a former army general as the new interior minister has raised hopes that Kenya can at last begin to successfully tackle Al Shabab, a raft of chal-lenges remain. In the short term there will be an ongoing risk of increasingly complex attacks both in the restive north-east and against other targets throughout the coun-try, particularly as AMISOM operations continue in Somalia and sectarian divisions continue to deepen within Kenya.

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South SudanFears of Spring Offensives Mark One Year Anniversary of South Sudan Conflict

Twelve months after the outbreak of hostilities between South Sudan’s governing elites, hope for a peace-ful solution to the civil crisis remains

distant. Armed conflict, originating from an initial con-frontation between rival factions of the Presidential guard on December 16, 2013, continues to plague the majority of South Sudan’s north-eastern states, while at the same time adding further pressures to refugee agencies and neighboring countries struggling to deal with the more than 1.9 million people displaced since the conflict began. While government forces have succeeded in reversing many of the initial gains won by the armies of former Vice President Riek Machar, the absence of a clear mili-tary superiority on either side has served to perpetuate an enduring stalemate, particularly from May onwards as units on both sides scaled down fighting with the onset of the rainy season. At heart, the challenge for peace re-mains a political one. Efforts to resolve the crisis by regional mediator Intergovernmental Authority on Development (IGAD) have recorded a number of successes over the course of 2014, including multiple bi-partisan agreements as well as four short-lived ceasefires designed to build the framework for a power-sharing deal. In each case, how-ever, disputes over executive authority, namely the powers to be assigned to incumbent President Kiir and his historic rival Riek Machar, have prevented a binding deal from occurring. Key rebel demands, including the establishment of a federal state structure, an executive position of Prime

Politics and SecurityDecember 2014

Minister as well as the maintenance of independent rebel armed forces during any political transition have all been repeatedly blocked by the ruling Sudan People’s Liberation Movement party, on the grounds that any such reforms would serve to weaken the authority of the President and his legitimate government. With the main protagonists of the conflict, President Kiir

and former VP Machar unlikely to stand down in the near future, the stage is set for an expansion in conflict across the north-east over the coming three months. The dry season of December to April has typically seen the fiercest fighting of historic conflicts in Su-dan owing to the improved logistics afforded to military commanders. Evidence of a build-up of military forces among the government army have also added to fears among the local populace that the Presidency may seek to deliver a final knock-out blow to the rebel forces prior to national elections scheduled for July

2015. Should this occur, South Sudan’s already ailing oil exports (down 50 percent from November 2013 levels) are expected to suffer a further hit, with aid donors largely filling the breach to support the country’s deterio-rating humanitarian environment. Marking the one-year anniversary of the outbreak of conflict, at least 26 people were killed in reprisal attacks between government and rebel force on December 15 in the Cueibet area of Lakes state. While both sides of the conflict maintain their willingness to uphold a peace agreement, such sentiment has not been reflected in conditions on the ground.

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TanzaniaWorld Bank Pledges $1.2 Billion to Boost East African InfrastructureThe World Bank has announ- ced a new partnership with East African Community (EAC) governments, development partners and private sector

investors to provide $1.2 billion worth of financing to help deepen regional integration over the next three to seven years. With East Africa set to be one of the next major global energy hubs, it is hoped the invest-ment will support the growing extractives industry, increase development and facilitate the movement of people, goods and capital.

The EAC is an intergovernmental organization com-prised of five East African countries: Kenya, Uganda, Burundi, Rwanda and Tanzania, who have a combined economy worth $110 billion. In recent years the bloc has embarked on several projects to boost integration, including the East Africa Standards platform and the Singe Window Information for Trade guidelines, and are currently working towards the implementation of an EAC-wide visa and introduction of a single cur-rency. The EAC, whose vision is to unite and increase stability, prosperity and development in East Africa, believes investment in regional infrastructure will facil-itate economic growth and reduce barriers to trade and integration.

Business and RegulationDecember 2014

The new loan will focus on reviving the region’s inland waterways on Lakes Victoria and Tanganyika, and enhancing the capacity and efficiency of the two main Indian Ocean EAC ports at Dar-es-Salaam, Tanzania and Mombasa, Kenya. Additionally, efforts will be made to improve transport links between the landlocked countries of Burundi, Uganda, South Sudan and Rwanda and the North and Central transit corridors, thereby improving these countries’ access to the ports.

The discovery of significant oil and gas reserves in Uganda, Kenya and Tanzania has attracted interna-tional attention, particularly from foreign companies seeking new gas sources to supply energy-hungry Asian markets. However, challenges remain and energy companies are wary of the lack of adequate infrastructure, availability of key skills and supply chain disruptions, among other factors. While inves-tors are optimistic about the potential for growth in the EAC’s oil and gas sector, this latest World Bank partnership will provide some of the critical capital needed by the EAC to improve infrastructure and deepen regional integration, hopefully mitigating the risks for international investors and giving them the confidence to take their next steps into the East African market.

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EthiopiaEthiopia Makes First Foray Into Global Sovereign Market, However Investment Risks RemainThirty years after the devastating famine which saw the world’s attention focused on Ethiopia, that East African nation – one of Africa’s fastest growing econo-

mies – has sold its first sovereign bond, taking advantage of record demand for high-yielding African debt. The 10-year, $1 billion Eurobond attracted significant investor interest and Ethiopia’s debut on the market is seen as a display of economic maturity for the country. It is hoped the capital raised from this debut bond sale will be used to develop sugarcane plantations; a 6000 megawatt hydropower dam; and improve the country’s rail net-work.

Ethiopia, Africa’s second most populous country and the continents biggest coffee producer, has seen rapid economic growth averaging 10.9 percent over the past decade. By contrast, other sub-Saharan African econo-mies have grown 5.4 percent on average over the same period. The country’s comparatively stable and demo-cratic political climate, presence of a free market, large potential workforce and huge raw material bases, make it an attractive investment location. Government and corporate issuers are seeking to benefit from growing investor appetite for emerging markets, which can offer diversification and the likelihood of higher returns. Ethi-opia now joins other African nations, including Ghana, Kenya, Senegal and Ivory Coast, who have issued debt

Business and RegulationDecember 2014

bonds and contributed to record sales of $15 billion in Eurobonds in Africa this year.

However, while the Ethiopian economy is one of the strongest on the continent and the country is likely to see increased interest from international investors, a number of risks still remain. While further conflict is not anticipated, investors should be aware of ongoing tensions between Eritrea and Ethiopia and the risk of food insecurity or famine. Ethiopia is also highly vulner-able to exogenous shocks, due to the country’s depen-dency on primary commodities and agriculture. Close monitoring of these potential risks and any operational changes will be critical for any international companies hoping to enter the Ethiopian market.

Although a number of major sectors, including retail, transport, banking and telecoms have been closed to foreigners to stimulate Ethiopian industry, other areas are now open to overseas investment. A Saudi owned Ethiopian company recently announced plans to invest $100 million in agricultural developments in western Ethiopia in 2015 and Ethiopian-South African, Ethiopi-an-Turkish and Ethiopian-Chinese business forums have all been held so far this month. There are high hopes that further investments will soon follow, with interna-tional confidence in Ethiopia buoyed by the recent sov-ereign market debut – an important public declaration that the Ethiopian economy has reached an attractive and profitable level of security and maturity.

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Regional ForecastDecember 2014

Upcoming Key EventsKenya Insecurity appears likely to continue in Kenya over the coming weeks, particu-larly as Members of Parliament debate the instigation of controversial new anti-terror laws. The new laws include measures to jail or fine journalists who are found guilty of undermining inves-tigations or security operations through their broadcasts or publications. Protests are likely if the new laws are accepted and there is a continuing risk of further insurgent attacks, which often come as a direct result of police activities against Muslim sites or individuals they believe to be linked to Al Shabab.

MalawI An arrest warrant has been issued for former Malawian president Joyce Banda, who has not been seen in the country for over two months amid suspicions she is attempting to claim political asylum in the US. Banda is at the center of the so called ‘Cashgate’ scandal, in which over $50 million is be-lieved to have been siphoned off from the central public fund.

TanZanIa Calls for the resignation of Tanzanian Prime Minister Mizengo Pinda look set to continue, following his implication in an energy scandal which resulted in the plunder of more than $120 million from the country’s central bank. Tanzanian Members of Parliament are pub-licly condemning the ruling government over the issue and political tensions are likely to increase as Pinda remains in office. The UK and other international donors have refused to resume aid donations until the current corruption investigation is concluded.

SoMalIa Despite AMISOM successes in southern Somalia, Al Shabab has carried out five beheadings in Mogadishu so far in December and it is likely there will be further incidents linked to the group. Al Shabab has also been responsible for an attack on an AMISOM base in Mogadishu, and insecurity in the Somali capital is likely to continue over the next month.

editor: James Borrelli

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