Barriers to regional blocs confine Kenyan firms to EA

Kenyan companies are increasingly setting their sights on the East African market to grow their cross-border businesses, shunning other highly lucrative regions due to costly entry barriers.

As a result, the companies are missing out on the wider African markets especially in bigger economies such as South Africa, Egypt and Nigeria — even as firms from these regions continue to troop into East Africa.

A survey released by research firm Synovate indicates that most Kenyan firms would rather expand to Tanzania, Uganda and Rwanda than venture into other regional blocs.

Analysts blame this trend on high barriers of entry into the markets — mainly the huge capital outlay needed, the high cost of doing business, cultural barriers, difference in legal systems and a desire by companies to consolidate their foothold in the domestic region.

“In as much as companies would want to go beyond the EAC market for growth, the barriers of entry in other regions are just too high,” said Carol Musyoka, a financial consultant with Bungani Consulting.

“The financial muscle needed to crack such markets is so huge that only few Kenyan companies can afford,” said Ms Musyoka. Kenyan firms are not included in the top 50 companies as captured by the African Report magazine.

The top ranks are dominated by South, North and Western African firms.

As a result , most local companies have preferred to boost their footprint within East Africa.

Fully exploited

“Most companies would want to be strong in their home markets which are yet to be fully exploited before they can think of expanding into other regions,” said Martin Oduor-Otieno, the chief executive at Kenya Commercial Bank which has branches Southern Sudan, Tanzania and Uganda.

“The temptation to enter other regions is high, but one has to first study and understand the capital requirement, cultural dynamics and cost implication of such a venture, making it cumbersome,” said Mr Oduor-Otieno.

The findings come at a time when the quest for a piece of the East African market, by investors from the rest of the continent, is on the rise egged on by the formation of a common market for East Africa, which will create a market of about 126 million persons and allow for free movement of factors of production, goods and services among the five East Africa Community member states.

Already, firms such as United Bank of Africa from West Africa have set base in Kenya .

Last year, Tiger brands from South Africa acquired a controlling stake in Haco Industries.

Dithering on regional expansion is taking place even as confidence in Kenya as an investment destination continues to grow.