EA to post best GDP growth as North, West, reel under load of oil shocks

Saturday October 12 2019

An oil tanker carrying 200,000 barrels of crude

An oil tanker carrying 200,000 barrels of crude oil is berthed at Kipevu Oil Terminal in Kenya's port city of Mombasa August 26, 2019 just before it was flagged off by President Uhuru Kenyatta on the inaugural shipment of crude oil by Kenya. PHOTO | NMG 

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East African economies are tipped to outpace growth of other regional blocs this year, as the slump in oil and commodity prices hits North, Western and Southern countries.

The Institute of Chartered Accountants in England and Wales (ICAEW) has in its latest economic update projected that East African economies will post a GDP growth rate of 6.3 per cent this year.

The GDP expansion is higher than the projected growth in North and West Africa, which is estimated at 2.8 per cent and 3.4 per cent respectively.

Southern Africa is expected to record a sluggish pace of 1.3 per cent, as the region grapples with policy uncertainty, effects of cyclones, rainfall deficit and power rationing.

While launching the Africa Quarter Three economic update, Michael Armstrong, the regional director for Middle East, Asia and Africa at ICAEW, said that East African economies like Kenya and Tanzania are shielded from global shocks as they are not oil export dependent.

The report, which was commissioned by ICAEW and written by Oxford Economics subsidiary NKC African Economics, says Mozambique, Zimbabwe and parts of Malawi suffered extensive infrastructure damage from cyclone Idai and Kenneth in March and April, which swept away roads and felled power lines, displacing tens of thousands of people and affecting 2.2 million people in the Southern Africa region.


Vincent Phiri, an economist at NKC African Economics says East Africa would post even higher growth figures but regional countries have experienced economic policy challenges in key sectors that drive growth.

For instance, Tanzania recorded notable decline in GDP with growth easing at the start of 2019 mainly due to weaker performances by the industrial and services sectors.

“Looking ahead, we expect GDP growth to ease from 7.0 per cent in 2018 to 6.1 per cent this year as erratic economic policies and the perceived hostility of government towards large foreign investors, continues to dampen foreign investor appetite,” says Mr Phiri.

Meanwhile, East Africa’s biggest economy, Kenya, will ease slightly, though is largely expected to hold its 2018 growth rate, riding on its strong ICT, manufacturing, construction and financial services sectors.

The latest Kenya National Bureau of Statistics figures show that real GDP growth came in at 5.6 per cent year-on-year in quarter two of 2019, unchanged from the quarter one expansion rate.

The country’s agriculture sector growth eased following a surprising performance during the first quarter, but this was counter-weighed by stronger growth in manufacturing, construction and financial services, although ICT—the fastest growing sector—expanded by 11.6 year on year in quarter two of 2019.

“Economic growth is expected to ease this year. A marked recovery in agriculture last year will contain growth figures this year, which will have spillover effects into manufacturing through agro processing and consumption in general due to the prevalence of subsistence farming,” argues Mr Phiri.

Meanwhile, Uganda is expected to have a favourable economic outlook and post a GDP growth above six per cent per annum, over the medium term, based on the development of its oil sector, but in September talks between the government and oil companies collapsed over a tax dispute, which has now stalled major oil projects.

Top of these is the East African Crude Oil Pipeline worth $3.5 billion from Hoima in western Uganda to the Tanzanian port of Tanga. The oil companies led by Total E&P were to build the pipeline in partnership with Uganda and Tanzania.

This means Uganda will yet again miss its late 2022 or 2023 oil production timeline, a delay that poses significant downward growth risks for the country.

“Our growth forecast was informed by the development of Uganda’s hydrocarbons sector and the multiplier effect of ongoing infrastructure development projects (mostly related to oil exploration).

However, due to uncertainty over production timelines, and the extended delays on oil exploration, we will likely cut our medium term outlook,” said Mr Phiri.

Uganda’s main export, coffee, also remains vulnerable to external shocks of price volatility and weather conditions, and now the economic growth is pinned solely on gold exports.

“Our growth forecast, although to be revised downwards, did take into account the external shocks related to coffee exports, particularly the persistent decline in international coffee prices and coffee production susceptibility to adverse weather,” said Mr Phiri.

“We expect gold exports to remain strong this year as [gold] prices continue to rally amid rising global uncertainty.”

The govt waived taxes on gold exports in 2014 and granted local gold smelters 10-year tax holidays, and this has seen an increase in production.

Partly because of this, Finance Minister Matia Kasaija was upbeat in his 2019/2020 budget speech in June, that Uganda’s economy had recovered, growing at over six per cent per annum over the past two years, a trend he predicted would continue.

In his monetary policy statement for October 2019, issued on October 7, central bank governor Prof Emmanuel Tumusiime-Mutebile said the “economy continues to grow but at a slowing rate.”

Mr Mutebile attributed this to economic slackening in the first half of 2019 compared with the second half of the previous year, citing the recently released quarterly GDP estimates by Uganda Bureau of Statistics which indicated that GDP growth had slowed in the second half of financial year 2018/19.

The central bank’s executive director of research Dr Adam Mugume said Uganda’s GDP growth rate was 6.5 per cent in the past quarter of 2018/19 but dropped to 5.4 per cent in the first quarter of 2019/20.