The Greater Horn of Africa – which comprises Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan and Uganda – remains largely poverty-stricken and in need of development. Conflict and restrictive regulation in and between member countries does little to facilitate border openness, trade, and infrastructural development – critical components in the growth of a nation.
On the other end of the spectrum, there are significant opportunities ripe for investment within the region which are often overlooked.
At a recent dialogue in Dubai, hosted by the Hollings Centre, participants analysed the region – taking into account its strengths, weaknesses, opportunities and challenges – in an attempt to pin-point areas of growth and potential. Below are some of the key takeaways from the discussion.
Given the unique nature of each country in the Greater Horn – be it political, economic, or geographical – the strengths of the region vary from territory to territory.
A strength unique to one of the member countries is Ethiopia’s manufacturing sector. It has considerable prowess in its leatherworking and textiles industries, so much so, that Swedish fashion chain H&M opened offices there in 2012. It joined supermarkets Tesco and Walmart, who both also source clothes from the country. Ethiopia offers tax breaks and other incentives to attract foreign investors.
One participant, an assistant professor emeritus of economics and finance, believes the region’s most important resource and strength is its human capital – especially the youth and the role they play as the working class and consumers. “This is one of the most important drivers of economic growth… In the FMCG market – Africa’s GDP has tripled since the year 2000, and we see a growing consumer demand in the youth population,” the professor said.
The region’s coastline cities have unique opportunities given their geographical location. Djibouti City, a Red Sea port city in Djibouti, currently handles 90% of Ethiopia’s imports and exports, and acts as a trade hub to connecting the region to Asia and Europe. Near the end of 2016 a new railway from Addis Ababa directly to Djibouti was launched, dramatically shortening the trip between the two cities. Ethiopia and Djibouti both benefit greatly from this – Ehiopia with better access to the sea and Djibouti with a direct link to Ethiopia’s emerging market of 95 million.
Another strength for the region is the large amount of remittances it receives. In 2015, at a round table meeting in Ethiopia, Somalia’s president said remittances are “a key source of external resource flows for all developing countries, which far exceed official development assistance”.
Catherine Long – a consultant and researcher, and a participant of the dialogue – listed a few of the weaknesses the region suffers from: “They range from the lack of formality of certain processes to difficult entry barriers for exchanges, to problematic market dynamics (the ease of doing business ratings for example), to the high level of security threats.”
Right now, free movement within the Greater Horn countries is fairly limited. Poor roads that are tolled, closed borders and security issues all restrict travel within the region. Just to move between neighbouring countries, 55% of the region’s citizens need visas. As a result, trade internally and with regional countries remains low.
Joseph Hammond, a US journalist, added, “Cross-border trade in Africa needs to be improved and formalised. I’ve been along the Ethiopia-Somalia border where people just walk back and forth… No country in the world has developed without reducing barriers to trade.”
Africa is widely considered an agricultural continent. However, farming opportunities are only available to a small part of the Greater Horn region, as 70% of the area is made up of arid and semi-arid lands. As for the arable land, 46% remains relatively unproductive. Erratic rainfall and frequent droughts doesn’t make for a conducive, agricultural base. This ties in closely with two other weaknesses that plague parts of the region – famine and food insecurity.
Additionally, infrastructure, whether it be in transportation and logistics, telecommunications, or financial institutions is severely lacking.
What the Greater Horn does possess in the ways of opportunities are varied.
Although agriculture is struggling, the region does boast extensive mineral resources that have not yet been fully explored and exploited. However, Kenya and Uganda, both Greater Horn member countries, also belong to the East African Community (EAC), with which they have mineral programmes.
A sizeable opportunity, brought up in the dialogue, lies in the region’s high mobile phone penetration, which as of early 2016 hit 88% in Kenya. Mobile money platform M-Pesa is currently being used by 96% of households outside Nairobi, and the Zaad platform in Somaliland has also proved popular.
Another underexploited opportunity, largely due to the lack of post-harvest infrastructure, is the fishing industry in Somalia, which has the longest coastline in Africa. As the local and international demand for fish increases, the opportunities to develop and build capacity in the sector rises as well.
Rahma Dualeh, the director of Frontline Consult, mentioned that despite policies limiting external business, “three countries in the Horn of Africa have made the top 10 in the RMB’s Invest in Africa index. It talks about openness of business within African countries. That is Ethiopia, Tanzania and Kenya, which ranked sixth, ninth and tenth respectively.”
The region is looking to spur development, and as such, must focus on supporting SMEs, which provide necessary services, economic growth and job opportunities.
While SMEs do present a number of opportunities and growth prospects, according to the group, they still face a number of challenges in the Greater Horn region that need to be overcome. Limited access to financial resources, excessive red tape, and poor road and rail networks that delay – or entirely restrict – the movement of goods from one place to another, is hindering development.
The huge opportunity in Somalia’s coastline has also opened it up to a huge tide of illegal fishing. Small fleets of fishing boats from countries like Yemen, Iran and South Korea, regularly break international maritime laws and ravage Somalia’s fishing locations. While piracy is being combated fairly efficiently – this leaves the waters open for these illegal fisherman to operate.
The Greater Horn region’s ambition to attract manufacturing industries, is challenged by the already-existing manufacturing powerhouses. An associate professor of the University of Massachusetts at Amherst, likened the situation to a typical bird flying formation – where the leader is interchanged (i.e moves out of the way) and let’s another bird take its place.
“For instance, Japan moves out and lets others take its place. As for India, it has sufficient low-wage populations that it will be a while before they move off that spot on the ladder for African countries to come in. In fact their movement into [the sector] has brought down the cost of manufacturing so low that in some cases manufacturing African countries have been driven out,” the professor noted.
Last, but not least, the discussion headed towards healthcare issues. A researcher and participant mentioned frequent stock-outs of medicines in Greater Horn nations, which has to do with political, market and systems instability. Foreign aid definitely alleviates some of the health-related challenges – but as Judith Konditi, an enterprise systems support analyst at Safaricom, pointed out – HIV/AIDS in the region is a key issue.
“If you aren’t healthy – you can’t work,” she remarked.