EAC economy to thrive amid uncertainities

Economies in East Africa will grow at between five and 7.6 per cent this year, though external factors including falling European tourist numbers, and a decline in foreign investment could curtail this growth, a new report from the World Bank says.

The bank’s latest global economic prospects report estimates Kenya’s 2012 economic growth at 5 per cent and 5.5 per cent next year. Uganda’s economy is to grow at 6.2 per cent this year, and 7.7 per cent next year.

While Tanzania will grow at 6.7 and 6.9 per cent, and Rwanda 7.6 and 7 per cent. Sub-Saharan tourists’ numbers grew 7 per cent in the first eight months of 2012, as tourists sought new destinations following the Arab springs in North Africa.

The Euro debt crisis has cast uncertainty on Africa’s 2012 economic prospects, threatening to cut tourists and export earnings, as well as reduce foreign remittances and investment inflows into the continent. EU accounts for 37 per cent of the region’s non-oil exports.

Europe appears to have entered recession, and growth in several major developing countries (Brazil, India, and to a lesser extent Russia, South Africa and Turkey) has slowed partly in reaction to domestic policy tightening.

The World Bank, however, notes that efforts to diversify export markets and increase intra-Africa trade would shield the continent from future crisis in other regions.

Europe now accounts for only 25 per cent of the regions total exports, compared to 40 per cent in 2002.

Exports to China have risen from 5 per cent to 19 per cent over the same period. Mainly as a result of a surge in raw material exports, especially metals and oil.

Though it possess the potential to unlock Africa’s growth potential, weak infrastructure, overlapping trade policies and cumbersome border policies pose the greatest challenges to the growth of intra-African trade, though efforts to address these deficiencies are beginning to bear fruit.

Citing East Africa, where it says trade integration is more advanced, the Bank says Kenya’s earnings from exports to East African Community members in the first seven months of 2011, exceeded its combined exports to traditional trading markets such as the U.K, Netherlands, Germany and France.

The Bank expects increased investment inflows, raising consumer spending and new mineral exports from some countries like oil in Uganda and Ghana, to drive growth in Africa.

The World Bank warns Africa that it must be prepared if growth prospects are constrained by external factors. Especially warning of a dry up, in international finance and a deterioration in global economy.

To prepare for these possibilities, Hans Timmer, Director of Development Prospects at the World Bank, said: “Developing countries should pre-finance budget deficits, prioritise spending on social safety nets and infrastructure, and stress-test domestic banks.”

Like many other developing countries, EAC member states, have less fiscal and monetary space for remedial measures than they did in 2008/09, and the ability to respond may further be constrained, the World Bank said.

It is feared that if the current situation worsens, EAC governments may be forced to cut spending, in view of the declining global financing to developing countries, compromising the region’s economic growth.