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Economic growth in Dar, Kigali to boost East Africa's rank

Saturday April 09 2016
RWANDAProperty

A business street in Kigali, Rwanda. East Africa is projected to lead other African regions in growth, rising 6.8 per cent in 2016 and 6.6 per cent in 2017, backed by robust growth in countries such as Rwanda and Tanzania. PHOTO | CYRIL NDEGEYA

East Africa is projected to lead other African regions in growth, rising 6.8 per cent in 2016 and 6.6 per cent in 2017, backed by robust growth in countries such as Rwanda and Tanzania, according to the Economic Report on Africa 2016.

This is despite low commodity prices, rising imports of capital goods for infrastructure and the recent drought.

By contrast, East Africa will lag behind on its urbanised population share by 2050. East Africa’s rural majority will translate into slower growth in manufacturing and a continued reliance on agriculture in the medium term (to 2025).

The report titled “Greening Africa’s Industrialisation” and launched during the African Development Week in Addis Ababa shows that East Africa maintained the highest growth rate in the region, at 6.2 per cent in 2015, despite a decline from 7.0 per cent in 2014.

But UN Economic Commission for Africa executive secretary Carlos Lopes warned that the current growth — driven largely by government related spending — has not generated sufficient jobs and has not been inclusive enough to significantly curb poverty.

“It is difficult to predict how the current downturn in commodity prices will affect Africa’s development trajectory: the situation is certainly difficult, but is providing powerful incentives to relocate economic resources away from commodity production and into more sustainable activities,” said Dr Lopes.

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The report says that regional risks include weather-related shocks. Drought could hurt agriculture, which is still the main employer in most African countries.
Poor harvests would increase risk of inflation through higher food prices.

Drought may also affect the hydropower generation capacity, threatening the greening of Africa’s industrialisation as economic agents switch to thermal power.

Rising debt

According to the report, East Africa’s deficit increased from 3.8 per cent to 4.6 per cent due to expansionary fiscal policies, mainly through increased spending on infrastructure and mining activities in Ethiopia, Kenya, Tanzania and Uganda.

“Fiscal deficits are expected to improve in 2016 to 4.6 per cent of GDP, and in all sub-regions except East Africa, where the deficit is forecast to widen to 4.8 per cent,” says the report.

Inflation in East Africa rose from 5.3 per cent in 2014 to 5.9 per cent in 2015.

In Kenya, it went down from 6.9 to 6.3 per cent and remained unchanged in Tanzania at 6.1 per cent. But it climbed steeply in Burundi (from 4.4 to 7.4 per cent), and Uganda (from 4.3 to 5.7 per cent), respectively, reflecting, political instability, weather related shocks and consequent increases in domestic food prices, and a depreciation of the domestic currency and rise in domestic food prices.

Yaw Ansu, chief economist at Africa Centre for Economic Transformation said that as a result of its reliance on commodity, natural resources exports and a small number of buyers for its exports, African countries are highly exposed to volatility and trade shocks.

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