EAC economies projected to grow rapidly in 2015: report
Economic growth for the region is expected to rise to 6.8 per cent this year this year, driven by Kenya and Uganda. PHOTO | TEA GRAPHIC
What you need to know:
The report shows that Africa’s overall GDP growth increase is reflected by GDP rebasing primarily in Nigeria but also in Ghana, Kenya, Tanzania, Uganda and Zambia.
Rebasing of GDP figures is long overdue as countries with outdated base years outnumber those that have updated it.
East Africa’s economies are poised for a rapid growth this year, according to a report by the Economic Commission for Africa.
The economic growth for the region is expected to increase from 6.5 per cent in 2014 to 6.8 per cent this year, driven by Kenya and Uganda.
The Africa Economic Report 2015 indicates that Kenya, the region’s largest economy, will benefit from rapid expansion of banking, telecommunications, urbanization, and investment in infrastructure, particularly rail.
Uganda’s growth will be supported by increasing activity in construction, financial services, transport and telecommunications.
The report states that in East and West Africa regions, inflation is forecast to increase from 5.9 per cent and 7.6 per cent, respectively, in 2014 to 6.1 per cent and 8.8 per cent in 2015.
Kenya’s inflation will be driven by the outcome of the rainy season, and in Tanzania by a weakening shilling and rising electricity prices. Kenya’s central bank has kept rates unchanged since 2012 but is expected to raise.
Rebasing
Titled “Towards a selective trade policy framework for industrializing Africa’’, the report shows that Africa’s overall GDP growth increase is reflected by GDP rebasing primarily in Nigeria but also in Ghana, Kenya, Tanzania, Uganda and Zambia.
"Rebasing in these countries reduced their debt-to-GDP ratios, which improved their capacity to borrow on domestic and international markets and helped to lift investment in their productive sectors,” said Carlos Lopes, the executive secretary for ECA.
"The rebasing of the GDP takes into account new transformations in the economy, such as the ongoing mobile phone revolution in the country," he added.
Kenya, revised up its GDP by 25 per cent to $53.4 billion in 2013 after rebasing, from $42.6 billion previously.
Tanzania's GDP has expanded by 32 per cent after the state rebased its calculation to incorporate new sectors in the economy, including big discoveries of natural gas. The country's GDP stood at $41.33 billion in 2013 after the rebasing, up from a previous estimate of $28million.
On the other hand, Uganda’s GDP stood at $24.69 billion at the end of the 2013/14 financial year after the rebase.
“Rebasing helps to better assess economic sectors with potential to grow and resources targeted to those sectors could boost productivity in those countries,” said Dr Lopes.
In Africa, rebasing of GDP figures is long overdue as countries with outdated base years outnumber those that have updated it.
“Identifying previously unregistered activities through rebasing of the countries’ GDP in the informal sector and the telecommunications and entertainment subsectors provides a better idea of their relative importance in the economy,” he said.
Fiscal deficit
The report says that the African fiscal balances will remain negative but are generally improving. In East Africa, the deficit is expected to slightly widen to 3.7 per cent of GDP.
“Burundi, Tanzania and Uganda will be the drivers of the deficit increase for East Africa, Burundi’s underpinned by high spending on military and civil servant salaries and public spending on imported goods,” says the report.
“In Tanzania, expansionary policy before the 2015 elections and weak fiscal management are behind the increase, whereas in Uganda the deficit will be driven by infrastructure investment, weak public spending controls and deteriorating relations with foreign donors.”
In Kenya the report notes that the fiscal deficit is expected to decrease mainly due to revenue and fiscal reforms.
East Africa, the report says, has the second-largest reserves, mainly because of high reserves in Burundi, the Comoros and Tanzania. However, they are expected to decrease slightly in 2015, as countries such as Ethiopia prefer to spend resources on development rather than build up more reserves.
Declining oil and commodity prices, tightening of monetary policies in developed countries and large trade and fiscal deficits will continue to drive exchange rate depreciation in most African countries.
The Kenyan shilling depreciated in 2013 and 2014 because of weak tea prices and low tourist inflows resulting from security concerns. The shilling is expected to slide further in 2015 as global monetary policies tighten.
