Prices of goods in East Africa are expected to remain stable this year, a reprieve for consumers, following near double-digit inflation last year.
A report by African Development Bank (AfDB) released last week indicates that inflation in the region is expected to fall sharply due to improved crop harvests, having spiked to nearly 10 per cent last year.
East Africa is also expected to post the fastest growth on the continent, which will likely attract more investors into the region.
“Growth is expected to remain buoyant, reaching 5.9 per cent in 2018 and 6.1 per cent in 2019. Strong growth is widespread in the sub-region, with many countries (Djibouti, Ethiopia, Kenya, Rwanda, Tanzania and Uganda) growing five per cent or more,” said AfDB in its 2018 Africa Economic Outlook report on the continent’s macroeconomic performance and prospects.
Factors to spur growth
Some of the factors expected to contribute to faster economic growth are increased private consumption and manufacturing, especially in Tanzania, Kenya and Rwanda, and investment in public infrastructure in Djibouti and Ethiopia.
“African economies have been resilient and are gaining momentum,” said Akinwumi Adesina, president of AfDB. “Challenges remain, especially for the structural transformations that would create more jobs and reduce poverty by deepening investment in agriculture and developing agricultural value chains to spur modern manufacturing and services.”
At the launch of the report at the headquarters in Abidjan on Wednesday, Mr Adesina said that Africa’s infrastructure requirements are about $130 billion to 170 billion a year. “That’s far higher than the long-accepted figure of $93 billion a year,” he noted.
Drought in 2017 resulted in poor harvests especially for staple foods such as maize in Kenya, which led to the government subsidising flour prices.
Uptake of debt remained a key concern in the region especially in Kenya, where AfDB warned that expected maturities may cause distress.
High public consumption has seen the government post large fiscal deficits that have been bridged by loans. Kenya’s debt burden has doubled in the past five years to Ksh4.48 trillion ($43.5 billion), now at 54 per cent of its GDP.
The Treasury, with the backing of the International Monetary Fund and World Bank, has maintained that the debt level is sustainable, but questions remain about the ability of projects to service the debts.
The Treasury recently took on new debt to settle loans that fell due. Debt repayment has become the country’s single-largest public expenditure item, with Treasury setting aside Ksh658 billion ($6.4 billion) to service it.
AfDB raised similar concerns about Uganda, which has been taking up debt to bridge budget deficits attributed to low revenue collections.
“At these growth rates, the debt burden is growing faster than government resources; the revenue-to-GDP ratio stands at only 13.4 per cent,” noted AfDB in the report.
Uganda was also cited for high public spending on contingencies, which are mainly attributed to security concerns. The country also has to deal with the challenge of weak public financial and investment management systems.
Tanzania’s sudden changes in policies and regulations, which come with President John Magufuli’s leadership style, were identified as internal risks.
The report showed East Africa grew by 5.6 per cent last year from 4.9 per cent in 2016.
Agriculture is set to rebound after poor harvests in 2017, particularly in parts of East Africa the report states.
The construction sector will remain strong, with continued expansion of services, including information and communications technology. The manufacturing sector may increase the share of industry, particularly in Kenya and Tanzania.
According to the report, economic growth performance varied widely across Africa’s five sub regions and countries.
North Africa, the region that recorded the second-highest growth rate in Africa, went up 5 per cent in 2017, up from 3.3 per cent in 2016, and is projected for 5.1 per cent growth in 2018 and drop to 4.5 per cent in 2019.
Growth in southern Africa went up to 1.6 per cent in 2017, from 0.9 per cent in 2016. It is anticipated to increase to 2.0 per cent in 2018 and 2.4 per cent in 2019, underpinned by expansion in agriculture, mining, and services.
West Africa, supported by increased oil production and output growth in agriculture, is expected to consolidate the gains made in 2017, rising to 3.6 per cent in 2018 and 3.8 per cent in 2019.
Central Africa has continued to underperform, even with the recovery in oil prices. Output dropped sharply in the Republic of Congo (-4.0 per cent) and Equatorial Guinea (-7.3 per cent), weighing down the region’s overall growth to 0.9 per cent in 2017.
Moderate recovery in the Republic of Congo will bolster growth in the region, which is expected to pick up to 2.6 per cent in 2018 and 3.4 per cent in 2019.
All regions except Central and Western Africa recorded inflation rates of 5 per cent or more in 2017.
Inflation spiked to nearly 10 per cent in East Africa, fuelled by a rise in food prices. This was especially so in Kenya, where the effects of a prolonged drought reduced the maize harvest causing serious shortages of the staple.
East Africa was also cited for poor access to electricity, which is the lowest on the continent.
Electricity access in urban areas is estimated at 73 per cent while in rural is 11 per cent. East African countries have been working on investing in power generation and electrification programmes.
The high cost of electricity and its availability have been of concern to foreign investors especially in Uganda.
Reported by Pauline Kairu and George Kamau