Investments in East Africa are expected to rise sharply this year, riding on falling inflation and growing consumer demand.

This positive outlook defies the spillover political risks from the ongoing conflicts in South Sudan, Somalia, DR Congo and the Central African Republic.

Economists from the United Nations Economic Commission for Africa (UNECA) and the Africa Union Commission (AUC) project that the EAC bloc will post one of the highest economic growths of all the five regions on the continent while registering a jump in new investments.

But the growth will still not be enough to pull the region’s growing population out of poverty and create enough jobs, economists warned.

Growth is expected to surpass 7 per cent this year, with Rwanda and Tanzania topping the charts.

“East Africa’s growth remained robust but unchanged at 6 per cent in 2013,” said Adam Elhiraika, the director of microeconomics at UNECA, at the Seventh Joint Annual Meetings of the AU and ECA Conference of African Ministers of Finance, Planning and Economic Development in Abuja, Nigeria, on Wednesday.

“Though robust, growth remains below potential and has failed to translate into meaningful job creation and reduce high poverty and inequality levels,” he added.

Natural gas

A report released by UNECA and AUC at the meeting showed that Tanzania’s economy grew by 7.2 per cent in 2013, fuelled by increased private consumption and investments in natural gas.

Uganda posted a 5.8 per cent growth last year, up from 4.4 per cent the previous year, reflecting greater activity in construction, transport, telecommunications and financial services as well as investments in oil exploration.

Kenya’s growth rose 5 per cent last year, from 4.6 per cent in 2012, owing mainly to increased consumer spending.

Growth was strongest in Rwanda at 7.4 per cent.

No country is expected to post reduced growth in 2014, experts said. The positive outlook on the EAC economies is expected to be a bait for investors as the countries seek funds to finance infrastructure and growth.

Kenya is seeking at least $1.5 billion through a Eurobond, which Treasury said would be floated in the first quarter of 2014, which ends on Monday. But the details of the issuance are not yet out.

Tanzania plans to float a bond worth $500 million to $750 million. In April last year, Rwanda issued a debut $400 million Eurobond, which was heavily oversubscribed.

“Africa needs to explore untapped resources to raise capital in addition to domestic sources such as taxes, levies and private savings. Countries need to go big on sovereign wealth funds, pensions, private equity and insurance funds as well as Eurobonds,” said Dr Elhiraika.

While growth is likely to suffer in the conflict-torn countries neighbouring the EAC bloc —DRC, South Sudan, Somalia and Central Africa Republic — the effects are unlikely to hurt economic expansion in East Africa, at least in the short-term, economists said.

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The conflicts in the four countries have left the eastern Africa region facing one of the biggest threats to stability in recent times. But should the conflicts continue for long degenerate into full-blown wars, economic growth and trade could suffer, the economists warned.

Kenya is faced with risks due to terror threats and attacks, with rating agency Moody’s saying worsening insecurity was hurting the country’s rating.

Still smarting from the Westgate Mall attack in September last year, six people were killed and dozens injured in a church gun attack in the Coastal city of Mombasa.

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“A precarious regional security situation, starkly highlighted by a terrorist attack at Nairobi’s Westgate Mall in September 2013, could further impair investment and tourism,” said the rating agency in its latest assessment on the Kenyan economy.

Poor infrastructure and non-tariff barriers remain the top threats to the projected growth of investments this year, economists said.

“Economies must fully integrate as blocs and end some of the trade barriers like visas which are curtailing flow of trade and human capital in the region.

Governments must also put together an industrialisation policy that is aligned to integration,” said René Kouassi, the director of economic affairs at the AUC. “We must ask ourselves hard questions, especially why one must get a visa to travel from one African country to the next.”

While EAC partners states have, in principle, agreed to remove NTBs, a number still exist while moving from one state to the other. Landlocked countries like Uganda, Rwanda and Burundi continue incurring heavy costs in moving goods and people across the region.

Kenya, Uganda and Rwanda recently signed up to a joint tourist visa plan to eliminate the need for multiple visas. Previously, tourists travelling between the neighbouring East African countries had to obtain a separate visa for each nation, making it costly for tourists to visit the bloc.

UNECA projects that, with African central banks tightening monetary policy, inflation will fall this year, as it did last year.

Africa-wide inflation fell marginally from 8.2 per cent to 8 per cent last year, on the back of easing international food and fuel prices, together with tighter monetary policy.

In 2013, East African countries maintained single-digit inflation rates for most of the year, thanks to good harvests, which stabilised food prices.

Lowest inflation rate

Uganda maintained an annual inflation rate of 5.5 per cent, the lowest in two years, while Kenya ended the year with an inflation rate of 7.2.

Tanzania kept its inflation rate at an average of 6.20 per cent for the second half of last year while Rwanda ended the year with the lowest inflation rate at 4.58 per cent, down from 5.1 per cent recorded in October. Burundi had the highest rate at 9.7 per cent.

The projected improved economic growth in the region could great a boost from an expected rise in exports.

“Africa exports are expected to decline to 27.5 per cent of GDP in 2014, in all sub-regions except East Africa,” said the UNECA/AUC report. “There, they will show a slight gain due to increasing non-traditional exports like floriculture and trade in services, especially in Kenya, Tanzania and Ethiopia.”

Foreign direct investments and diaspora remittances are also expected to fuel growth in the region in the remaining part of the year.

Diaspora remittances to Africa are estimated to have reached close to $70 billion last year. But Africa remains the most expensive region to which to remit funds, at 12.4 per cent of the amount going into transaction costs.