MIXED BAG FOR EAC ECONOMIES IN 2015 AS IMF PROJECTS GROWTH

Rebasing of the major economies in East Africa involved a review of baseline years used for calculating economic growth and inclusion of new data to reflect changing economic patterns.

East Africa’s economies are expected to continue registering growth this year largely driven by sustained national and regional infrastructure investment and buoyant service and agricultural sectors. 

Falling global oil prices are also expected to support growth by mitigating inflationary pressures in the coming months across the region. Moreover, East Africa boasts much greater political stability than it had at any time in its recent past, and peace has been restored in most of the countries.

This overall positive outlook is, however, overshadowed by the spillover effects of the deadly Ebola outbreak in West Africa, which have dampened the region’s prospects in the tourism, service and aviation sectors due to the perceived risk to exposure.

“This Ebola outbreak has sent shockwaves around the world — it has been a killer for the aviation industry across Africa especially.  For instance, to customers sitting in the US, Europe, Australia — to most of them Africa, is one country. We get lots of them these days cancelling their holidays, their conferences on the continent because they do want to risk the stigma of having visited Africa,” John Mirenge, chief executive officer of RwandAir, told The EastAfrican.

This is in addition to security risks posed by the terrorist group Al Shabaab and weakening global commodity prices that are likely to reduce export revenues for the region, which continues to depend on tea, coffee, flowers and minerals for export.

According to the International Monetary Fund, real GDP growth is this year expected to pick up across the region, led by Tanzania with 7.2 per cent growth, followed by Rwanda, Uganda and Kenya at 6.7 per cent, 6.3 per cent and 6.2 per cent respectively.

READ: Mixed prospects for Uganda after rebasing economy

ALSO READ: Rwanda set to evaluate economy every 3 years

Burundi will register least growth at 4.8 per cent. The region has also managed to contain inflation this year to single digits. Rwanda recorded the lowest annual headline inflation as of November 2014 was 0.7 per cent, Uganda was 2.1 per cent, Burundi at 4.2 per cent and Tanzania was at 5.8 per cent respectively. Kenya recorded the highest inflation at 6.1 per cent.

“The country in East Africa with the best macroeconomic performance at present is Tanzania. However, we anticipate that may well weaken over the coming year because of fluctuations in commodity prices. Its main commodity export is gold and the price of gold is falling sharply,” said Andrew Mold, senior economic affairs officer for Sub-Regional office for Eastern Africa (SRO-EA) of the United Nations Economic Commission for Africa (ECA).

Economic dominance

However, the overall performance of the region will to a great extent continue to depend on what happens in Kenya, which analysts see as the anchor of the region given its economic dominance propelled by a diversified economy with a vibrant private sector.

“Despite the dip in 2012, Kenya’s economic performance has been improving in recent years and this has regional significance, given that it is the largest economy in the region and significantly larger now since the rebasing of its economy in September last year,” Mr Mold said.

Following the rebasing of the major economies in East Africa in 2014 — a process that involved a review of baseline years used for calculating economic growth and inclusion of new data to reflect changing economic patterns, the EAC market is now estimated at $134 billion up from $112 billion in 2013 excluding economic growth in 2014, according to UNECA estimates.  

Attractive preposition

In the light of the new figures, analysts said the regional market is an attractive proposition for both domestic and foreign investors.

Fresh GDP data for the third quarter in East Africa shows Rwanda taking the lead with 7.8 per cent growth up from 2.9 per cent at the end of the same period last year, sending signals that the country is likely to exceed its 6 per cent growth projection for 2014.

However, growth slowed during the third quarter for Kenya, to 5.5 per cent compared with 6.2 per cent in the same period last year, on account of the slowdown in tourism sector. The economy is projected to expand by 5.3 per cent in the full year.

However, Tanzania, the region’s second largest economy  posted lower growth in the second quarter of 2014 at 6.9 per cent compared with 7.6 per cent over the same period a year ago, while the projection for the full year is 7 per cent.

“The challenge for countries like Kenya, Tanzania, Uganda, Rwanda and Ethiopia is to sustain this economic growth further. This will require addressing potential bottlenecks to growth. A good example of such bottlenecks is infrastructure. There is a significant shortage of electricity in the region. Roads and ports are also congested in many cases. Addressing this is going to be very important,” said Abebe Selassie, IMF African Department deputy director.

The East African