KENYA

Construction registers highest growth

Kenya’s construction sector registered the fastest growth in the third quarter of 2013 compared with the agricultural, manufacturing, financial and transport and communication sectors.

The sector recorded a significant growth of 13.3 per cent during the quarter under review compared with a marginal growth of 0.2 per cent over the third quarter of 2012, thanks to a robust real estate market and increased government infrastructure projects.

A recent report by the Kenya National Bureau of Statistics says this demand pushed production and consumption of cement up by 12.8 per cent and 13.4 per cent respectively.

The GDP performance report for the third quarter of 2013, released last week, points out that demand for quarry products saw the mining and quarrying sector expand by 9.4 per cent during the review quarter, up from 1.8 per cent in the third quarter of 2012.

READ: Kenya's economic growth slows down to 4.4pc in third quarter

Experts at Mentor Holdings, a consortium of companies specialising in investments and financing in the green energy and real estate sector, said the sector’s yearly performance will close on an upward trend going into 2014 given the rising demand for housing, which has seen investors build more residential houses and buildings for business purposes alongside government’s infrastructural projects.

“There is also a notable high demand in the high-end market, which is expected to grow even more as interest rates come down,” said Mentor Holdings executive chairman Dan Ojijo.

The agriculture and forestry sector slowed down the most, growing just 3.4 per cent compared with a 5.8 per cent growth in the same quarter of 2012. This growth was mainly supported by increased production in tea, vegetables and sugar cane.

The performance of key industrial crops was mixed during the quarter under review, with coffee production declining by 15.9 per cent while tea delivered to marketing boards and sugar cane production increased by 13.8 per cent and 42.5 per cent respectively. Tea prices have decreased by 30 per cent since July 2013, and this is likely to impact negatively on the earnings, experts said.

“The drop in prices has been occasioned by increased supply of teas in the market and favourable weather; if the weather remains favourable, things will be no different in 2014,” said Lerionka Tiampati, East Africa Tea Trade Association chairman and Kenya Tea Development Agency managing director.

The hotels and restaurants sector slowed to 1.3 per cent, from 2.1 per cent in the same quarter of 2012 on account of terrorism threats and the economic constraints in major source countries, among them the US and European countries.

Notably, the Westgate Mall attack in September affected bookings. Experts said the industry recovered in the third quarter, with high rates of bookings seen going to 2014.

READ: Westgate attack slashes 0.5pc off 2013 growth

The manufacturing sector posted an improved growth of 4.6 per cent compared with 2.6 per cent recorded in a the same period in 2012. The growth was supported by increased production of cement, sugar, soft drinks, wheat flour, cigarettes and assembly of motor vehicles. Processing of milk, beer and maize meal, however, recorded declines.

Transport and communications grew by 5.3 per cent during the period, from the 3.1 per cent growth during the same quarter of 2012, riding on a robust expansion in the communications sub-sector at 7.9 per cent, up from 5.0 per cent growth in the third quarter in 2012.

The transport and storage sub-sector also recorded an improved growth of 3.0 per cent, from 1.3 per cent in 2012. The improved performance in the sub-sector was the result of expansion in air transport, which was positively impacted by an increase of 1.5 per cent in international visitors to 483,000 arrivals during the third quarter of 2013, up from 476,100 arrivals in the same period of 2012.

Although construction is one of the sectors pushing the economy forward, lending rates remain a determinant of growth in this industry.

UGANDA

South Sudan conflict could take toll on economy

While poor sales growth and low government spending largely defined 2013 for Ugandan businesses, the country’s economy could fare worse in 2014 as low consumer demand and political unrest in South Sudan take their toll on economic output.

Economists say persistently low government expenditure has affected performance in several sectors this year, a trend reflected in weak consumer demand. If this trend continues, it could undercut both growth forecasts for 2014 and tax collections.

As a result, some economists are projecting economic growth in the 4.5 per cent band, compared with the 5.1 per cent recorded in financial year 2012/13. By contrast, the IMF projected growth of 6.2 per cent for the current financial year, citing positive knock-on effects of large infrastructure projects such as the $1.4 billion Karuma hydropower dam and stronger growth in private sector credit.

Overall, tax collections for the period July to October 2013 stood at Ush2,450.17 billion ($976.6 million) against a target of Ush2,507.03 billion ($999.2 million), reflecting a deficit of Ush56.86 billion, according to data from the Uganda Revenue Authority.

Major factors cited for the poor tax performance include teething problems associated with the re-automation of the government’s accounting systems and subsequent delays in payment of suppliers’ bills, plus reduced incomes reported by firms in their tax returns. However, consistently low government spending has raised new concerns about the country’s ability to achieve growth rates above 5.5 per cent.

Declining consumer demand witnessed in several sectors has left many businesses with gloomy prospects of flat or falling profits, with companies dealing in fast moving household goods, construction materials and luxury items like designer clothing plus cosmetics most affected by the downturn.

The violence that broke out in South Sudan, leading to near a shutdown of its economy, has led to disruption of oil drilling operations, cross-border trade and financial transfers within the banking sector.

With the conflict likely to persist, analysts claim stalled growth in trade volumes and workers’ remittances could impact Uganda’s exports and disposable incomes within the population.

Though actual forecasts on the effect of South Sudan’s political crisis on the economy were not available by press time, suppliers of building materials like cement, fresh foodstuffs like pineapples and cooking oil are bound to suffer most, according to trade experts.

READ: Kampala, Nairobi big losers should South Sudan slide into war

On the other hand, technocrats say increased spending on infrastructure projects and a sharp recovery in private-sector credit could steer growth closer to six per cent, in spite of lingering threats from food price shocks and fluctuations in export demand. “South Sudan remains a big factor in our growth equation.

Due to very low growth experienced in the services sector and modest growth in private-sector credit, economic growth might fall to 4.5 per cent next year, compared with 5.1 per cent recorded in 2012/13.

Though tax enforcement gains have been on the rise, low economic growth could certainly eat into revenue performance,” said Lawrence Bategeka, senior research fellow at the Economic Policy Research Centre.

TANZANIA

Communication, construction set to drive growth

Tanzania anticipates that its economy will grow by 7.2 per cent in 2014, according to Finance Minister William Mgimwa.

Dr Mgimwa said new growth frontiers in communication, construction, electricity and mineral extraction, including natural gas, are likely to accelerate economic growth in 2014 and beyond.

This year, the biggest contributors were information and communications, which expanded 20.6 per cent, and financial services, with 13.2 per cent growth.

The World Bank says the growth of the communications sector has transformed how Tanzanians trade and do business, facilitating a revolution in banking.

An estimated 45 per cent of Tanzanian adults use their phones to receive and transfer money, with the cumulative value of these transfers reaching an estimated $1.4 billion per month.

Tanzania’s growth, economists argue, has also been buoyed by a steady increase in domestic demand, partly as a result of rapid population growth.

“In the absence of major adverse effects from the global economy, the forecast is a real GDP growth rate of 7.2 per cent in 2014, up from seven per cent in 2013,” Dr Mgimwa said.

Indeed, overall inflation fell to 6.1 per cent in September with core inflation (excluding food and fuel prices) settling at 5.8 per cent.

However, all is not rosy for Tanzania as there are challenges that could slow down the economic growth.

“The current account deficit declined somewhat, but remained large, at 13.5 per cent of GDP in July 2012-June 2013,” reads a statement by the International Monetary Fund mission to Tanzania.

Fiscal pressures emerged during the past financial year (2012/13). Net domestic financing of the government was in excess of targets agreed under an IMF-supported programme, by about one per cent of GDP.

For the current fiscal year (July 2013-June 2014), tax revenues are likely to fall short of initial projections.

This will require sizeable adjustments to the budget in the upcoming mid-year review to align expenditure plans with available resources.

The government has reaffirmed its commitment to the agreed fiscal deficit target of five per cent of GDP.

To sustain economic growth and to stem fiscal pressures during the current and next financial years, priorities include mobilising additional revenues by reducing and simplifying tax exemptions and bringing the power sector to financial sustainability.

“Key medium-term policy challenges include fostering continued strong growth through productive infrastructure investment, while preserving priority social spending, and maintaining debt sustainability; enhancing the institutional framework to ensure that possible future revenues from newly discovered natural gas deposits benefit all citizens; and improving the business climate,” the IMF statement said.

ALSO READ: World Bank sees Tanzania’s economy growing 7pc in 2014

The African Development Bank’s latest economic outlook also indicates that the main drivers of growth in Tanzania will be telecommunications, transport and financial intermediation, manufacturing and construction, and trade.

“But continued emphasis on sound economic management and strengthening political governance could ensure that the newly found natural gas resources will indeed play an important role in Tanzania’s socio-economic transformation over the medium term,” states the report.

Dr Mgimwa said the government also seeks to effect interventions to ensure GDP growth is propelled by key sectors, mainly agriculture, horticulture, coffee, cotton and cashew nuts, manufacturing, mining, infrastructure and tourism.

RWANDA

Positive short-term outlook

The National Bank of Rwanda’s Monetary Policy Committee has maintained the key repo rate unchanged at seven per cent to sustain macroeconomic stability and encourage the flow of finance to the economy in 2014.

The Rwandan economy continued to grow in 2013 but at a slower pace than 2012, mainly due to uncertainties in international financial markets and the effects of cuts in donor support.

Credit to the private sector increased by 11.3 per cent between December 2012 and November 2013, while inflation remained moderate, decelerating from 5.1 per cent in September 2013 to 4.6 per cent in November 2013.

Economic growth slowed to 5.9 per cent during the first half of the year due to a shortfall in donor budget support, according to the International Monetary Fund. Recently, the IMF cut the country’s growth forecast for 2014 to 6.6 per cent, down from 7.5 per cent.

READ: Rwanda’s economic outlook set for a turnaround

“Looking forward, current economic performance indicators are trending upwards. Monetary policy has room to to continue supporting credit expansion without putting much pressure on inflation,” John Rwangombwa, the Governor of the National Bank of Rwanda, said early in the week.

The bank said easing regional inflationary pressures and a positive short-term outlook for international oil prices are expected to limit inflationary pressures in the first quarter of 2014.

The economy is also benefiting from the improved global economic environment.

In the first half of 2013, export revenues hit $289.92 million, an increase of 46.3 per cent over the $198.2 million earned over the same period last year.

BURUNDI

Need to manage debt, arrears

The growth of the Burundian economy has over the years proved to be volatile, reflecting the country’s macroeconomic instability and its inability to withstand shocks due to its narrow tax and export base.

Burundi’s tax revenue fell 20 per cent in the first five months of 2013 due to an economic slowdown and a fire that destroyed a major marketplace in the capital Bujumbura.

Earnings from coffee and tea — which account for 85 per cent of the country’s export earnings — face severe pressure, with the country’s coffee regulator predicting that earnings will fall sharply in the 2013/14 harvest; production is expected to fall by almost half, to 13,000 tonnes, from 24,000 tonnes in the 2012/13 coffee year.

The IMF says that the country’s real GDP growth is expected to improve to 4.5 per cent in 2013 and 4.7 per cent in 2014, reflecting the implementation of large infrastructure projects and improvements in the tourism sector and electricity generation.

Only four per cent of Burundi’s population has access to electricity. For Rwanda that figure is 13 per cent, Tanzania 15 per cent while about 25 per cent of Kenyans are connected to the national grid.

Moving into 2014, Burundi will have to find ways of controlling its debt, which the IMF says places the country at a risk of default.

“There is a need to strengthen public financial and debt management, including through the deployment of expenditure controllers in key ministries. This would help to avoid expenditure overruns and the accumulation of arrears,” says the IMF in its latest review of the country’s economy.