Cities and middle class driving region’s growth

Expansion of cities and a burgeoning middle-class are driving the economies of East African countries as infrastructure development gets prioritised.

According to Deloitte’s Africa Construction Trends Report 2015, the two factors are key in the region’s growth, even as it has a long way to go in establishing the robust infrastructure development needed to realise the region’s economic promise.

NEW LAMU PORT SITE; The plan of the LAPSSET Project being constructed at Kilalani area in Lamu County.The lapset project plan in September 2013 during the launching of the new Lamu Port in Lamu. (PHOTO: MAARUFU MOHAMED /STANDARD )

“The changes in the retail estate sector can be attributed to expansion in cities and a growing middle class,” says Mark Smith, Deloitte’s head of infrastructure and capital projects in East Africa.

Lifestyle facilities

According to the report, the region’s growth is spurred by a mixture of ventures, with sectors like retail, entertainment lifestyle facilities, modern office parks and hotels, with Kenya and Tanzania leading the pack.

In the case of Kenya, the last few years have seen global hotel franchises like Best Western, Villa Rosa Kempisnki and Radisson Blu set up shop in Nairobi, with mega projects like English Point Marina, Tilisi in Limuru and Garden City Mall open or occasion a ground-breaking event.

According to the report, the region is the fastest growing on the continent with economic growth expected to expand by over five per cent. The figure is higher than the continental average of 4.5 per cent.

Other than the influence from the expansion of cities and a bulging middle-class that has pushed up retail business and increased the demand for residential housing and other amenities like malls and office space, observers say the region is on the right infrastructural path.

Smith says the region enjoys high yields in retail property rentals, technology innovation and sustainability with a drive toward green and open spaces, growth of ‘new urbanism’, as well as increased foreign direct investment, but also has a shortage of quality property.

Infrastructure

Even as the report sounded a warning that “states in the block of countries remain vulnerable and require the right checks and balances”, the level of infrastructure development is unprecedented, with figures stating that the region represents 20 per cent of all projects in progress in Africa.

The projects are valued at $57.5 million (Sh5.8 billion).

“The cogs of East African progress will, in particular, rely substantially on development of trade routes. This is a priority at the highest levels of governance as can be seen through presidential championing of projects such as LAPSSET (Lamu-Port-South-Sudan-Ethiopia-Transport) corridor; the region pushes towards more integrated transport infrastructure...,” said Smith.

The report also indicates that the region has a significant potential in oil and gas fields, although it also notes that the sector is progressing at a slow pace. Kenya, for instance, has made great strides in sourcing more geothermal power to feed the electricity lines and also export.

The oil prospecting in Turkana is still in high gear, with the first barrels for export expected to hit the Kenyan Coast within a year. The Kenyan Coast is still undergoing prospecting after oil deposits were discovered off Malindi and Lamu.

“Upstream of oil and gas also hold huge investment potential. However, there are many moving parts that will be directed by governmental policies to drive impetus,” said Smith.