The news that economic growth rates across the three major economies of the East African region are rising rapidly — and significantly above sub-Saharan Africa as a whole — is an indication that diversification is becoming established, a report says.

The recent World Bank Global Economic Prospects report notes that growth in Kenya, Tanzania and Uganda stood at 5.4 per cent, 7.0 per cent and 6.8 per cent last year.

In Kenya, it is expected to rise to six per cent this year and 6.6 per cent in 2016. Tanzania’s growth will increase slightly to 7.2 per cent this year but will fall to 6.8 per cent in 2016. Uganda’s growth will remain steady at 6.6 per cent this year and rise to 6.9 per cent in 2016.

The growth rate in sub-Saharan Africa as a whole stood at 4.5 per cent last year, and is expected to rise to 4.6 per cent this year. This, the World Bank says, reflects a slowdown in several of the region’s large economies, particularly South Africa. Across sub-Saharan Africa, growth is expected to surpass five per cent in 2017.

In East Africa, what is particularly significant is that much of the growth is not on the back of better commodity prices but from ongoing structural changes in the countries’ economies.

Since last year, the price of oil has fallen by half and many metals such as copper and iron ore have also dropped sharply. With commodity prices also plunging, the fears were that growth rates would fall.

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Manufacturing

A report in the UK-based Economist said that one reason this has not happened yet “may be because economic growth is starting to come from other places.”

“Manufacturing output on the continent is expanding as quickly as the rest of the economy. Growth is even faster in services, which expanded at an average rate of 2.6 per cent per person across Africa between 1996 and 2011. Tourism, in particular, has boomed: The number of foreign visitors doubled and receipts tripled between 2000 and 2012,” notes the report.

This increasing economic diversification is also due to the fact that African governments have worked hard to make life better for investors.

The World Bank’s annual Doing Business report revealed that in 2013/14 sub-Saharan Africa did more to improve regulations than any other region. It singled out Rwanda, which is now deemed friendlier to investors than Italy.

Many countries, including Ethiopia, Ghana, Kenya, Tanzania Mozambique and Nigeria have recently revised their estimates of GDP to account for their growing non-resource sectors. Telecommunications, transportation and finance are also expected to spur economic growth.

Tanzania is the latest East African country to join Kenya and Uganda in rebasing its economy upwards to incorporate new sectors.

New statistics show that Tanzania’s GDP is up 32 per cent to stand at Tsh69.8 trillion ($41.33 billion). This is the highest revision in the East African region, followed by Kenya’s, whose GDP rose 25 per cent to stand at $55.2 billion, while that of Uganda rose 13 per cent to stand at $25 billion.

Risks to future growth

However, there are risks to future growth.

The World Bank says the economic outlook “is subject to significant downside risks arising from a renewed spread of the Ebola epidemic, violent insurgencies [citing countries such as South Sudan and Somalia], lower commodity prices and volatile global financial conditions.”

It adds that policy priorities include a need for budget restraint for some countries in the region — Kenya is singled out — and a shift of spending to increasingly productive ends such as infrastructure. It also says that public sector management could be improved “with greater transparency and accountability in the use of public resources.”

Worldwide, after growing by an estimated 2.6 per cent last year, the global economy is projected to expand by 3 per cent this year, 3.3 per cent in 2016 and 3.2 per cent in 2017.

Developing countries grew by 4.4 per cent in 2014, and are expected to edge up to 4.8 per cent this year and to 5.3 and 5.4 per cent in 2016 and 2017, respectively.