17 January 2016

East Africa: Election Fever, Insecurity Pose Threats to Region's Economy

Politics and security issues stand in the way of economic growth for East African countries this year in the absence of further integration to allow for free movement of goods, services, people and capital.

The World Bank's 2016 Global Economic Prospects show that the EAC economies will grow by an average of 5.8 per cent this year.

According to Scholastica Odhiambo, a senior lecturer at the School of Business and Economics at Maseno University, security concerns and uncertainties over elections in Tanzania last year, Uganda next month; and Rwanda and Kenya in 2017 have dampened prospects for growth this year.

In addition, the transitions can send mixed signals to investors especially if new administrations prefer policy tweaks that could sent investors back.

She said the economies of the five East African countries would grow faster if they fully opened up their borders to allow free movement of goods, services and people.

"The only way that say, Tanzania will improve its education sector by allowing more qualified teachers from Uganda to come into the country and offer their services without any limitations. This will not only improve the education sector but the entire economy of the country," said Dr Odhiambo.

Economy forecast

Country wise, the World Bank forecasts faster growth for Kenya, Rwanda and Burundi and constant growth for Uganda and Tanzania.

The World Banks's report shows that Burundi will grow at 3.5 per cent, up from 2.3 per cent last year, while Kenya's GDP is projected to be 5.7 this year, up from 5.4 per cent last year.

The report sees Rwanda growing at 7.6 per cent this year, from 7.4 per cent in 2015 and Tanzania and Uganda growing at unchanged rate 7.2 per cent and 5.0 per cent, respectively.

The World Bank projections are modest compared with projections by the national governments.

The Uganda Treasury has forecast the country's growth at 5.8 per cent in 2016/2017, which it had projected for last year, while Kenya officials expect the economy to grow at 6.9 per cent. Last year, Kenya revised its growth to 6 per cent from the initial 6.5 per cent. Rwanda has projected an economic growth target of 8 per cent and Burundi's official target is 4.7 per cent.


For Kenya, Dr Odhiambo said the economic growth may be higher than the World Banks's projection if the security situation improves. Last year many travel advisories were issued hence affecting the tourism sector that is a large contributor to the economy.

Kenya has suffered a string of attacks from Al Shabaab militants, who are demanding withdrawal of the country's soldiers from Somalia.

The militants staged two major attacks -- Westgate Mall and Garissa University, which left at least 219 people dead.

"The Al Shabaab attacks that were witnessed last year also kept away most investors. If the situation remains calm this year, things may start taking shape," noted Dr Odhiambo adding that the US President Barack Obama's visit last year could contribute to the country's expected growth this year.

"More US investors are expected to come into the country and set up business here and more foreign direct investment will come into the country."


Rwanda's growth, she said, is expected to grow because of restructuring the President Paul Kagame has effected in governance, distribution of resources and investment in the infrastructure and service sector of the country.

However, the country's growth will be slowed by political transition and elections in the neighbouring countries of Burundi, Tanzania and Uganda.

"Tanzania has a new government this year that is still transitioning. Investors are still not sure whether the new government will set new rules on how to conduct businesses in the country or will change the existing rules. So they will have to wait until it settles in," noted Dr Odhiambo.

"For Uganda, with the elections coming up, nothing much can go on in terms of investment until the elections have been concluded and a new government is in place -- one reason why its growth is projected to remain the same as last year's," she said.

However, the report shows that the fiscal risk factors have increased in several countries in the region because of sharp increases in public debt and contingent liabilities. Further weakness in commodity prices could result in even sharper fiscal and currency adjustments. It could also lead to delays in investments in energy and mining, particularly in East African countries.

"With the slow economic growth in the region, commodity prices remain a key risk factor across the region," said Eric Musau, an economist and research analyst at Standard Investment Bank.

"With the prices of key commodities remaining subdued in the global market, economies in the region are facing fiscal and monetary pressures since export earnings are depressed."

He said the large-scale infrastructure investment and sustained consumer spending in the region helped offset weakening external demand and low commodity prices.

Even so, the region faced currency pressures, which contributed to a sharp increase in interest rates in Uganda and a decline in reserves in many countries in EAC.

The report says that global growth disappointed again in 2015, slowing to 2.4 per cent, and is expected to recover at a slower pace than previously envisioned. Growth is projected to reach 2.9 per cent in 2016, as a modest recovery in advanced economies continues and activity stabilises among major commodity exporters.

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