East Africa: Mauritius nudging Kenya for lead

African Business, April, 2008

Despite Kenya's political turmoil our survey of the top 50 companies in the sub-region for 2008 shows the East African heavyweight still firmly on top of the regional rankings.

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East African Breweries has overtaken Barclays Bank Kenya at the top of the tree by a wide margin, with market capitalisation up from $1.3bn last year to $2bn this time around.

Kenyan firms fill 28 places in the table but this is down from 32 last year and there are even indications that Mauritian firms could seize top spot, although no other economies in the region are able to play anything other than a minor role in the rankings.

As our survey reflects market capitalisation over the most recent financial year, this year's results do not reflect the highly unexpected explosion that followed December's elections in Kenya.

The impact on investor confidence both within and outside the region may hit market values over the next couple of years but much depends both on how quickly the country's political elite come to a durable political settlement and on how rapidly much needed economic reforms can be introduced. A limp coalition of different factions is unlikely to be of much use on either count.

Although Kenya enjoyed relatively strong economic growth of 4-6% between 2004 and 2006, the reforms required to allow the country's established, successful companies to make the most of their lead in East Africa only trickled through.

Partly as a result, Mauritian firms continued to make inroads at the top end of our table. Although Mauritius Commercial Bank, New Mauritius Hotels and State Bank of Mauritius are still the only companies representing the island state in the top 10, they are now ranked third, fifth and sixth respectively, while none of them featured in the top six last year.

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The scale of the Mauritian growth is even more impressive with regard to their market capitalisations. They have all at least doubled in value in just 12 months, while Mauritius Commercial Bank has grown from $784m to $1.63bn over the year and could threaten the Kenyan top two in the very near future.

However, Tanzania and Uganda are still under represented in the top 50 in relation to the size of their economies and especially their large populations.

While Uganda had no firms listed in 2007, it has two banking and financial services companies this year, DFCU Group and Stanbic Bank Uganda. Tanzania remains stuck on three entrants: Tanzania Breweries, Tanzania Portland Cement Company and Tanzania Cigarette Company, and indeed all three have lost ground over the past year to other more rapidly growing companies.

Banks and financial services companies continue to dominate the table, particularly at the top end where they fill seven out of the top 12 slots. As ever, construction, food and beverage firms also make a strong showing, particularly in the brewing and cement sectors but it is heartening to see a wider range of industries represented.

Among Mauritius' largest corporations are three tourism companies, while in the information technology sector Access Kenya Group (AKG) makes a welcome entry in 50th position.

However, it is still disappointing to see so few manufacturing enterprises represented in our table and this is partly an indication that too little use is still being made of processing the commodities produced by East Africa's large agriculture sector within the region.

In addition, the lack of power generating capacity and particularly reliable electricity supplies, remains a major deterrent to manufacturing investors.

Despite the ups and downs of various economies and different sectors, there seems no doubt that the overall strength of Eastern Africa's companies is increasing. Although the weakening dollar over the past couple of years has played some role, this cannot mask the rising value of the region's largest companies.

While East African firms needed a market capitalisation of $27.9m to make it into the top 50 in 2006, this rose to $47.8m in 2007, and now stands at $72.6m and could feasibly break the $100m barrier next year. Politicians in Nairobi, Dares Salaam and Kampala are banking on the East African Community (EAC) to help boost growth rates in the region. It is argued that greater cross-border trade will build on Tanzania and Uganda's strong progress over the past decade and help to get the Kenyan economy back on track. Yet the unrelenting progress of the Mauritian economy over many years shows that a diverse economy and rising living standards can be achieved even without near neighbours with which to trade.

The EAC should encourage growth in the long term but there is no getting away from the fact that political and economic stability, attractive terms of investment and ambition are the fundamentals on which all strong economies should be built.