By JAMES ANYANZWA

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Equity Bank, in collaboration with 37 partners that include UN agencies and development financial institutions, has developed a plan to accelerate post-Covid economic recovery in the East and Central African region through a private sector-driven $4.68 billion stimulus package.

The Marshall Plan, which borrows heavily from the $15 billion US-led European Recovery Programme following the devastation of World War II, aims to support economic revival in South Sudan, the DRC, Kenya, Tanzania, Rwanda and Uganda, countries in which the lender is present.

The plan, which is backed by over $450-million worth of loan guarantees by development financial institutions, targets micro, small and medium-sized enterprises (MSMEs). These are in key sectors of the economy like manufacturing, agro-processing, education, low-cost building and construction and the retail and wholesale trade sectors.

Supporting SMEs

“We have realised that the power we have can keep the lights of these economies on. We have already done a pilot test of this programme with local SMEs and what we are doing is just up-scaling the programme across the region,” James Mwangi, the bank’s chief executive told The EastAfrican.

With a seed capital of $4.68 billion, the programme aims to create up to 25 million direct and indirect jobs by lending to five million businesses, with each receiving about $900.

“This amount [$4.68 billion] is able to fuel these economies to recovery. We are starting from a pole position, in the sense that these economies never slid into a recession last year and that East Africa is one of the fastest growing regions in the world,” said Mwangi.

The lender, which is listed on the Nairobi Securities Exchange, has mobilised Ksh120 billion ($1.08 billion) from development partners, and raised close to Ksh400 billion ($3.6 billion) from internal sources.

On October 28, the Agence Française de Développement through its subsidiary Proparco granted Equity Bank two guarantee facilities, totalling Ksh5 billion ($45.04 million) to help the lender support SMEs, which are considered the engine of economic growth.

According to the African Development Bank (AfDB), East Africa is facing a weak economic outlook in 2021, owing to rising public debt, high cost of living and weakening credit to the private sector. In its latest economic outlook report on the region, AfDB states that the pandemic has exacerbated the region’s high debt, with many countries’ at risk of debt distress increasing and the cost of debt service skyrocketing.

This has increased budget allocations to debt financing and prompted drawing down of foreign exchange reserves to finance external debt thereby reducing access to external financing for infrastructure spending.

“Given that real GDP growth in several East African countries is driven by public investments, these factors will slow the region’s growth prospects,” said AfDB in the East Africa Economic Outlook 2021, Debt Dynamics: The Path to Post-COVID Recovery.

The report says the top performers in growth projections for 2021 are Djibouti (9.9 percent), Eritrea (5.7 percent), Kenya (five percent), Tanzania (4.1 percent), and Rwanda (3.9 percent).

East Africa’s proportion of the population living in extreme poverty has risen to 35 percent in 2021 from 33 percent in 2019, while gross foreign exchange reserves have deteriorated in some countries in the region.

The report noted that although the region is expected to recover this year and next year, the speed of vaccination rollout and the discovery of new strains of Covid-19 may dampen that outlook.

The region’s growth is projected to rise to three percent in 2021 from 0.7 percent in 2020 and 5.6 percent in 2022.

The report shows that the region’s public debt as a share of GDP went up to 73 percent last year, from a low of 40 percent in 2011, due to the pandemic, substantial currency depreciation in economies with large foreign currency debt, reduced commodity revenue inflows, and borrowing to finance emergency public spending in healthcare.

“Though adverse macroeconomic and financing conditions associated with Covid-19 and its economic consequences explain much of the short-run rise in debt burdens in East Africa in 2020, debt ratios had been rising for much of the past decade, creating vulnerabilities and exposing countries to substantial refinancing risks,” said AfDB.

Many East African countries have increased their debt to bridge the financing gap caused by Covid-induced weak revenue performance.

But this debt has significantly increased debt vulnerabilities in many countries. For instance Kenya has moved from moderate to high risk of debt distress.

Kenya has already secured deals with Paris Club and other creditors to defer debt service payments of $600 million, including $378 million to China, for the first half of 2021.

According to AfDB, East African countries should work closely with development partners and other stakeholders to strengthen their capacities to manage public debt and limit overreliance on volatile funding channels that undermine the smooth implementation of planned projects.

Rising global oil prices are a major downside risk given that most East African countries are net oil importers.

Though the anticipated increase in oil prices is good news for the region’s few oil-exporting countries, it remains a major risk to the economic recovery for the rest.

Forecasts project a consistent increase in global oil prices from $41 a barrel in 2020 to $65 a barrel in 2021 and $66 a barrel in 2022. These projected increases would reflect on the cost of production and doing business in the region’s oil exporters, which is not only inflationary but also lowers aggregate demand.

According to the AfDB, post-Covid recovery will be realised if services become more vibrant and productive, and growth of service industry is accelerated.

“Excessive dependence on unprocessed agricultural commodity exports amid volatile international commodity prices and a subdued global growth and investment finance outlook will likely reduce public investment financing sources and impede the region’s growth prospect,” said report.

Inflation in Tanzania and Uganda is expected to edge up due to the impact of higher oil prices on non-food inflation.