16 April 2018

East Africa: Drought, Reduced Credit Slow East Africa's Economic Growth

The value of goods and services produced by East African countries dropped in 2017, as the region's GDP growth slowed to an average of 5.3 per cent, due to the adverse effects of drought and reduced credit to households and businesses.

The region's economic growth stood was 6.1 per cent in 2016, and 5.4 per cent in 2015.

Last year, Kenya was the worst performer in the region as its economic growth decelerated to a five-year low of 4.8 per cent, according to the World Bank's latest update.

The report, released last week, shows that Kenya's economic growth rate trailed her regional peers by 0.5 percentage points on account of poor rains, slow growth in credit to the private sector and a prolonged election period.

The economies of Tanzania, Rwanda and Uganda are estimated to have grown by 6.4 per cent, 6.1 per cent, and 4 per cent respectively.

In the wider EAC region, Ethiopia, the region's largest economy, maintained a strong growth of 10.3 per cent in 2017, mainly driven by public sector investment in infrastructure.

Tanzania has maintained a relatively stable growth rate of between six and seven per cent over the past decade.

According to the World Bank, economic growth in Tanzania and Uganda was fuelled by a bumper harvest in the latter half of the year following favourable weather conditions. In Rwanda, improved weather and a rebound in exports explained the accelerated growth .


However, a slowdown in credit across the region dampened growth, and insecurity and political tension continued to constrain economic activities in Burundi, Somalia, and South Sudan.

The region's economic growth is projected to increase to 5.9 per cent, supported by a stable macroeconomic environment, ongoing infrastructure investments, and strong private consumption.

In Kenya, a rebound in economic activity is gaining momentum, and GDP growth is expected to recover to 5.5 per cent in 2018 and steadily rise to 6.1 per cent by 2020.

Agricultural output is expected to rebound due to improved rains, a reduction in political uncertainty, and the recovery in the global economy.

The agricultural sector is the main driver of East Africa's growth, followed by manufacturing. The mineral subsector is also driving growth.

According to the African Development Bank (AfDB), the average regional domestic saving rate was 12.8 per cent of GDP, the investment-to-GDP ratio was 24.2 per cent, and the domestic resource gap in 2017 stood at about 11 percentage points.

Kenya, Rwanda, and Tanzania are expected to drive the region's growth further in 2018 and 2019, the AfDB said.

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