General Electric, the largest US conglomerate upgraded its Nairobi office early this year to a regional hub serving its sub-Saharan Africa business.
Over the past one year, the manufacturer of large-scale industrial products has also sealed several deals on the continent as its seeks more opportunities in Kenya, Uganda, Tanzania and Rwanda.
Mwaura Kimani spoke to the president and CEO of GE Africa, Jay Ireland on doing business in the region and the firm’s strategy for the continent.
What is GE’s strategy for East Africa and what should the region expect?
We set up our headquarters in Nairobi based on the realisation that we needed a larger presence in East Africa. Our focus is healthcare and energy projects. We plan to invest over $100 million in two wind power projects in Kenya starting next year.
We are in the final stages of negotiations with Kenya Power on a Power Purchase Agreement and hope to break ground next year. The plan is to generate close to 150MW in projects at Kinangop, central Kenya.
In Tanzania, our focus is on power projects especially on natural gas. In Uganda, we do not have a presence yet but we are looking at it come 2013.
In Kenya some of our biggest customers are Kenya Airways and Rift Valley Railways to whom we supply engines. Across East Africa, we are increasing our investments in medical equipment as well as supplying jet engines for companies like RwandAir and other regional airlines.
Most African countries have huge infrastructure plans. Given that such projects are capital intensive, where will the funds come from?
In Africa, the traditional financiers of such projects have been development institutions like the World Bank and IMF. Now we are seeing global as well as local banks getting involved.
The next step is to see private equity and sovereign funds getting on board. Pension funds too are changing focus and financing big infrastructure projects. It is no longer just a government-sponsored initiative; more private firms are coming up.
Human capital is becoming the arsenal for growth and the single tool each company needs to navigate the business terrain. Where are the skills gaps in Africa?
With growing investments on the continent, there is a need to build capacity. We have good luck in pulling business-oriented people together but there is a need for more investments in the hard technical stuff.
Governments have to take the responsibility of educating their people up to a certain level, say secondary school. Private companies can then enlist these graduates and train them in specific skills. Governments need to work alongside the private sector.
How have trade risks and integration impacted on the business environment?
Continued integration is important for growth. Businessmen in West and South Africa would like to see more of that.
Trade barriers remain a hindrance. For example, it takes two weeks to ship goods from Nigeria to Ghana — that’s got to get better.
But regarding returns on projects — the political and business and credit risks are the same as everywhere else. You can lose money in Africa just as much as you can anywhere else, but you can also make a lot of money here. The challenge is getting investors to understand how to price the risk appropriately.
What sectors will drive growth in Africa in coming years?
Consumer business is the sector to watch. Infrastructure also looks set to play a big part. For example, there is great demand for power generation in sub-Saharan Africa. Mining, oil and gas is East Africa’s next growth frontier; the potential is huge. A growing middle-class means companies must produce more, and more goods have to be shipped in.
What is your biggest worry as a businessman with huge investments in Africa?
Some of the things that must improve is infrastructure. We need to see growth across countries especially with regard to electricity and logistical networks. Also important is transparency, rule of law and a reduction in corruption. This will create a favourable environment for businesses to thrive. Another big concern is lack of enough well trained technical people.
In Africa, political risk is also an issue. For us, the biggest worry is not something drastic like violence happening and shutting down everything but new governments coming in and changing everything say with nationalisation laws.
Kenya holds its election next year, an event which is of interest to business and households in the East African region, at least following a botched poll in 2008 that triggered violence. How worried are you about the near-term outlook? Are some companies holding back on decisions?
Usually, you plan for the worst. Slowdowns around elections happens in every country. In the Ghana elections last week, everything came to a standstill. It’s not just an African thing. What happened in Kenya was awful but from a business perspective, we are not in the consumer business, and the economy kept going, despite the drop in tourism and other sectors.
Just don’t change the laws dramatically — businesses want stability.
The business community continues through elections across countries. That’s what delivers growth. As a business you plan for the worst and hope for the best. Neither Kenya, nor East Africa nor the rest of the world can afford a repeat of that.