- AfDB projects mid-term economic growth across EAC will accelerate to 5.1% in 2023 and 5.8% in 2024. This will be the highest growth area in Africa.
- The region will largely be powered by growth in Rwanda, Uganda, Ethiopia, Kenya, Djibouti, and Tanzania.
- East Africa’s real GDP is riding on a strong services sector that contributed almost 50% of the economic growth in 2022.
According to the newly released African Development Bank economic outlook, the East African Community (EAC) economies will post the highest regional economic performance on the continent in 2023 and 2024, with growth rates of over 5 percent.
AfDB’s 2023 East Africa Economic Outlook projects that EAC’s mid-term economic growth will accelerate to 5.1 per cent in 2023. The region will further post 5.8 per cent economic expansion in 2024, outpacing all other African regions. The region will largely be powered by growth in Rwanda, Uganda, Ethiopia, Kenya, Djibouti, and Tanzania.
Burundi, the Democratic Republic of the Congo, Kenya, Rwanda, South Sudan, Uganda, and Tanzania are the seven nations that make up the EAC.
According to the report, East Africa’s real GDP has been propelled by its services sector, contributing almost half of the economic growth in 2022. The industry contributed 2 percentage points to GDP growth, lower than 2.5 percentage points on average for the period 2015-21.
Service sector key economic engine
The region’s natural and cultural attractions draw tourists from around the world, creating a demand for accommodation, food, and entertainment services.
The East Africa region, however, faces several external and domestic downside risks that could impact its economic outlook. These include a global economic slowdown, and rising commodity prices. The ongoing Russia-Ukraine war can potentially hinder growth momentum. Policymakers will have to rollout measures to manage international trade policies for EAC to thrive.
Tightening of global financial conditions, exchange rate depreciation, and a resurgence of Covid-19 are also a threat.
“The domestic risks include gaps in infrastructure, domestic conflicts and political instability, macroeconomic imbalances, and adverse impacts of climate change,” the report states.
The annual Africa Economic Report by the African Development Bank assesses the region’s macroeconomic performance. It includes medium-term projections and analyzes the risks to the region’s growth outlook. The report also delves into topical issues the region is facing.
EAC shift to green economy
The 2023 report themed Mobilizing Private Sector Financing for Climate Change and Green Growth explores the importance of a green transition for Africa and emphasizes the role of private sector financing. The report also highlights natural capital as a significant source of funding for climate-compatible growth in East Africa.
Although Africa contributes less than 4 percent to global carbon emissions, it faces substantial climate financing challenges. The continent is struggling to get enough financing for mitigation and adaptation measures. The report identifies four common economic challenges in the region: reliance on agriculture, dependence on natural resources, energy issues, and water scarcity.
It advocates for a robust, inclusive green growth agenda to address these challenges. The report suggests tapping into sectors such as renewable energy, sustainable agriculture, infrastructure, and forestry for green growth pathways in East African countries.
Climate financing from private sector
During a virtual launch event, Nnenna Nwabufo, the AfDB Director General for East Africa, stated that in 2020, the region could only cover 11 per cent of its estimated annual climate financing needs of $67.2 billion. This highlights the substantial financing gap challenges for climate change and green growth in the region. Nwabufo emphasized that at least 50 per cent of climate financing will need to come from the private sector.
According to Nnenna Nwabufo, increasing private sector financing for climate change and green growth in East Africa will necessitate a combination of policy interventions. In the short to medium term, dialogue is essential to enhance private sector participation in climate change initiatives. The goal is to boost resource mobilization and implement other interventions.
The Bank’s chief economist and vice president Prof Kevin Chika Urama, called for appropriate regulations, incentives and support for project preparation, as well as the development of strong capital markets that could ease entry and exits by domestic and global investors.
“It will require greater use of blended finance, deployment of de-risking facilities at scale, and the development of platforms that can allow the private sector to invest in a portfolio of green projects as opposed to individual projects to diversify and manage risks,” Urama said.
EAC’s debt burden
Prof. Njuguna Ndung’u, Kenya’s Cabinet Secretary for National Treasury and Economic Planning, was key speaker at the report launch. He urged regional governments to collaborate with development partners and fulfill their obligations. This strategy, he noted, will speed up transformation in a region that is heavily indebted.
“The growing debt burden is holding back the growth potential of our countries, thereby elevating poverty rates and inequality,” he said.
Dr. Marcellin Ndong Ntah, East Africa Regional Office Lead Economist, said the region will experience the highest inflation rates in Africa in the medium term. This is attributed to factors such as the debt situation, global shocks, and internal conflicts. However, there is some relief as inflation pressures are gradually easing.
According to Ndong Ntah, debt vulnerabilities will continue to be high in East Africa due to exchange rate depreciation. High primary deficits will keep posing risks to sustainability, he notes. He highlighted countries like Burundi, Comoros, Djibouti, Ethiopia, Kenya, and South Sudan as having high debt risk.
Dr. Edward Sennoga, another lead economist in East Africa, pointed out that the region possesses untapped natural capital. “The region is well placed to advance its pursuit of climate and green growth ambitions, given its market size; youthful population that could double by 2050; green technology potential; and significant natural resource endowments.”
“The EAC region is well placed to advance its pursuit of climate and green growth ambitions. There is a lot the region can leverage on. The region has significant opportunities in green growth sectors notably agriculture, energy, ICT, transport, and the blue economy. These are investment opportunities that can contribute to addressing financing gap challenges for climate change and green growth,” Sennoga said.