EAC economies take a knock, Tanzania still looking good
Posted Saturday, September 10 2011 at 17:31
Tanzania is expected to weather growing economic challenges affecting the region in the fourth quarter of 2011 better than Kenya and Uganda, making it a more attractive destination for investors.
The first half of 2011 delivered some unexpected shocks that have severely disrupted the pace of the economic recovery, with a heavy impact on the performance of currencies in Uganda, Kenya, Tanzania and Rwanda but the re-emergence of financial tensions in the Eurozone appears a biggest risk.
The spillover effects of a gloomy forecast on global growth, the recent downgrade of US government debt, the unrelenting crisis in the oil-rich Arab world and continuing worries about the European debt crisis continue to shake the five economies.
At least three listings are set for the Dar es Salaam Stock Exchange (DSE) by the end of the year, which could attract investments at the bourse.
The DSE has been the best performing stockmarket in the EAC, up 9.8 per cent while the Nairobi Stock Exchange and Uganda Stock Exchange are down 23 per cent and 17 per cent respectively.
Tanzania’s rate of inflation has risen more slowly than its neighbours, thanks to a surplus of agricultural commodities such as maize and other grains when there is scarcity across its borders due to drought and distribution constraints.
And its currency is holding up better in trading against the dollar than Kenya’s and Uganda’s, easing the pressure on imported inflation, especially on oil.
“It is tough times across the region,” said Ken Kaniu an analyst with Stanbic Investment Management Services. “But Tanzanian might end up doing better than Kenya and Uganda.”
The fund manager last week released its economic update for Kenya and Uganda where it identified key challenges facing the region as double-digit inflation, volatile local currencies and depressed activity at the stockmarket.
The analysts though expect inflation across the region to ease off in coming months as farmers begin to harvest their crop and bring it into the market and also as global oil prices fall on reduced demand.
Kenya’s inflation rate hit 16.67 per cent and Uganda’s stood at 21.4 per cent in August, with the Kenya shilling facing its worst pressure in two decades.
“We have to take some action toward that end, basically just to ensure that we restore some kind of stability on the monetary side. Inflation numbers are definitely out of the range we had originally predicted,” said Kenya’s Finance Minister Uhuru Kenyatta a fortnight ago. “We are in discussions with the Central Bank to deal with this issue to ensure stability and normalcy returns.”
But Tanzania reported a slower acceleration of price with inflation at 13 per cent.
“Though it is an expensive place, the prices have remained relatively stable,” said Job Ongeri, a Kenyan accountant living in Dar es Salaam.
Tanzania’s currency has lost only seven per cent to the dollar to trade at Tsh1,630. Uganda’s shilling has been the hardest hit – being landlocked, it has to bear the brunt of increased costs, losing around 18 per cent to exchange at Ush2,818.