NAIROBI/KAMPALA, (Reuters) – East African nations could reap trade and investment opportunities worth billions of dollars to help develop south Sudan if it splits from the north, but they will have to compete with bigger rivals like China to do so.
Southerners are expected to vote overwhelmingly in favour of separation in a referendum next week, a vote that follows decades of civil war with the north and, the south says, economic and political marginalisation.
While companies in neighbouring Kenya and Uganda, from taxi firms to Kenya’s largest lender by assets, Kenya Commercial Bank (KCB), are already tapping the boundless opportunities in Juba, the south’s capital, others are primed to join in.
“We have an advantage but that does not mean we cannot be outcompeted,” said James Shikwati, executive director of the Inter Region Economic Network think-tank.
“Powers such as China, Japan, India are also ready. Whatever we manufacture, they can land here at almost zero cost.”
Kenya’s exports to south Sudan almost doubled between 2005 and 2009, rising to 12.8 billion shillings ($157.7 million) from 6.8 billion after south Sudan rebels signed a peace agreement with Khartoum’s administration that paved the way for Sunday’s vote.
South Sudan is neighbouring Uganda’s main export market, importing goods worth $184.6 million from east Africa’s second largest economy in 2009, according to the Uganda Exports Promotions Board.
“For the last couple of years south Sudan has been the largest driving force for our manufacturing sector because its demand for our products has been remarkable,” said Maggie Kigozi, executive director of the Uganda Investment Authority.
Uganda is establishing a 3.0 billion shillings ($1.29 million) industrial park in Gulu for manufacturers targetting the south Sudan market, she said. Once a marginalised town at the heart of northern Uganda’s own civil war, Gulu has boomed as a trading post linking Kampala and Juba.
Toyota Uganda plans an engineering and repair workshop in Gulu to tap the neighbouring market, where Toyota’s 4×4 Landcruiser rules the dirt tracks.
RISK OF RENEWED
CONFLICT
The risk for East African nations is what happens if the vote ignites a new conflict that might draw in regional economies, in which case neighbours could expect a sharp downturn in demand for their products as well as a torrent of refugees.
A return to war might cost neighbouring countries 34 percent of their total annual GDP over a 10-year period and set back Kenya and Ethiopia $1 billion annually, according to a report by Frontier Economics.
“If the referendum is conducted well and Khartoum receives the outcome peacefully and south Sudan is born as a new state, we’re almost certain our annual exports to this new country will double, our trade with south Sudan will grow tremendously,” said Florence Katta, head of the Uganda Exports Promotion Board.
“If the vote favours secession and Khartoum starts a war, our exports will plummet.”
Kenya’s KCB has plans to double its branches in South Sudan to 30 by 2015 and stands to lose its investment if war erupts.
“It’s virgin territory … It has got the potential to be the biggest economy in the region in the next 10-20 years,” KCB chief Martin Oduor-Otieno said in a Reuters interview.
“Everybody is holding their breath. The last thing anyone wants is another Somalia flaring in the region. If that happens it will be extremely difficult to stabilise the south,” said James Shikwati. “It’s about regional security and stability.”
LAMU CORRIDOR
Kenya is positioned to pitch itself as a logistics hub and transport conduit for an independent but landlocked south Sudan.
The region is rich in oil, the main bone of contention over the demarcation of borders, which it pipes north to Port Sudan.
Analysts believe the new state would seek to export its oil to the Indian Ocean coast via a yet-to-be-built corridor through Kenya to sidestep Khartoum.
Hungry for the south’s resources, countries such as China and Japan will happily finance such an alternative exit route, analysts say.
Kenya is seeking investors to fund its $22 billion share of a planned corridor connecting Ethiopia and Sudan to the Kenyan coast with railways, roads, telecommunications cables and a 1,400 km pipeline.
Toyota Tsusho, the investment wing of the carmaker, is one of the companies interested in the $1.5 billion pipeline, according to an International Crisis Group (ICG) report.
SOME RESENTMENT
There is some resentment towards Kenyan and Ugandan business players investing in south Sudan, however, with some southerners perceiving them as hawkish and exploitative. They say neighbouring countries benefitted from the aid funding that flowed through their economies when they sheltered refugees, and should leave the country to its owners.
