East African region needs an economic overhaul

Posted on January 28, 2014 05:56 pm

East African governments have released a series of encouraging economic figures, including stronger-than-expected GDP growth for last quarter of 2013, which has boosted the regional economic expansion for last year. That ended months of guessing about whether the region would post weak quarterly GDP figure. Consumer confidence is also said to have risen this month with the biggest increase shown in the Uganda, Rwanda and Tanzania stock market investment outlook and economic outlook over the next six months with Kenya stock markets expected to register modest growth. The index of economic monitoring indicators indicates that the economy should be on track by the second quarter of 2014. However, according to an financial analyst in the region who shared with me these figures, the reported positive notes do not guarantee significant or comfortable growth for the economies in the region, as the optimism has primarily been built on expectations about the revival of European economies that region relies heavily on its exports. The United Republic of Tanzania economy is expected to grow at a faster pace of over 7 per cent this year, according to projection released earlier this month and backed by country’s finance ministry.

The forecast indicate that the Kenya’s economy would grow by more than 5.5 percent this year, from less than 5 percent last year. There is a blind spot in the regional government’s economic optimism. United Republic of Tanzania is also increasingly replacing Kenya as a preferred destination of manufacturing services and foreign direct investment in the region. In addition, while advanced Kenyan economy is expected to experience solid expansion in GDP this year, Rwanda, Uganda and Tanzania should see their growth accelerate. Analysts are worried that East African region may suffer a hard landing by reporting GDP growth of over 7 percent this year. This is because, the US Federal Reserve’s stimulus tapering has triggered fears about a recurrence of a high interest rates crisis in the region and the fears are spreading, given the increasing capital outflow from East African countries over the past five months, which in turn have triggered dramatic fall in currency valuations. The region is facing a rough future because of its stagnating exports, weak economic infrastructures and increased borrowing and growing reliance on China to get funding. Contador Harrison think that East African community member states should focus on improving their economic fundamentals and focus on upgrading manufacturing and industrial sectors and further opening of their markets.

Contador Harrison