The East African economies were looking forward to 2020 with a lot of optimism. While there were issues with inflation and money circulation in Kenya, projections still showed the country would comfortably manage a growth range of above 5 percent. All the other eastern African countries were projected to do even much better with Rwanda leading in terms of growth averaging 7 percent. Then, Coronavirus happened. This has reversed the projections with fear that the region with the highest growth rate in Africa will stagnate. This has already been felt with stock markets across the region registering massive capital loss and foreign investors shying away from the market. The region is also looking at ways of sustaining their economies amid lockdowns in Uganda and Rwanda, partial lockdown in Kenya and a non-restrained movement approach in Tanzania.
The International Monetary Fund’s (IMF) latest World Economic Outlook projections for 2020 pegs Kenya and Tanzania’s respective GDP growth rates at one percent and two percent respectively in 2020, down from 5.6 and 6.3 percent respectively in 2019. Uganda will maintain a 3.5 growth rate this year, compared with 4.9 percent in 2019.
Kenya: The struggling big brother
Kenya has remained the biggest economy in East Africa dictating terms for its neighbours. These include supplying fast moving goods for the regional market and having one of the most active private sectors. Most of the companies that have cross-listed in the regional markets are from Kenya. However, all was not well even before the landfall of coronavirus. A high debt ratio, a struggling financial sector and chronic graft was slowly killing the country’s core.
Kenya has not been among the countries that have received debt relief from IMF when it announced that 19 countries will receive some relief. The IMF excluded Kenya from the list of countries granted loan interest payments waivers because its per capita income was above $1,215 (KSh128,790) hence classified as a lower-middle-income country. IMF loan to Kenya stood at $481 million (KSh50.9 billion) in June 2019, representing 5.27 percent of KSh947.5 billion the country owes multilateral lenders. The total public debt is to hit KSh5.7 trillion ($54.3 billion) by June this year.
The public debt stands at 62 percent of gross domestic product and could hit 70 percent of GDP in the near future if the government continues to borrow at the current rate. In January, Kenya made its first payment of loan it owes Exim Bank of China for the construction of the Standard Gauge Railway paying over KSh71 billion at a time the country is tackling significant financial challenges.
Even the much-praised Foreign Direct Investments (FDI) were shrinking with investors opting for Rwanda and Ethiopia. According to figures from UNCTAD’s 2019 World Investment Report, in 2018 the FDI influx to Kenya raised significantly to US$1.6 billion (from US$1.2 billion in 2017). The total stock of FDI stood at US$14.4 billion in 2018. Most of this investment goes to ICT and agriculture while there has been an increase in attention for the mining sector with Oil and Gas leading the sector.
Kenya is facing a multiple challenges to its well-being including fighting a devastating locust plague and now the effects of Covid-19. Aerial spraying to beat back a plague of locusts swarming across Kenya will cost $70 million, the UN estimates. However, the impacts the locusts are likely to have on Kenyan agriculture are huge, running into millions, especially to small-holder farmers.
The Nairobi Securities Exchange (NSE), the biggest bourse in the region is also facing immense pressure with record losses in the period between January and April. Companies listed on the NSE lost 21 percent of their values in the first three months of the year as the domestic equities market took a hit from the coronavirus pandemic.
A report by Cytonn Investments shows the NSE in bear territory with the Nairobi All Share Index (NASI), NSE 25, and NSE 20 registering declines of 20.7, 24.2 and 25.9 percent respectively. The NSE losses in the period were led by large-cap stocks such as Bamburi, Equity, KCB, BAT, EABL and ABSA who lost values of 40 percent, 36.5, 35.2, 28, 24.7 and 24.5 percent respectively.
Stanbic Bank Kenya Purchasing Managers’ Index (PMI) slipped to 37.5 in March 2020 from 49 in the previous month, pointing to a sharp deterioration in business conditions that was the strongest since October of 2017. In Kenya, the CfC Stanbic Bank PMI measures the performance of agriculture, mining, manufacturing, services, construction and retail sectors and is derived from a survey of 400 companies.
The Kenya shilling has managed to find its footing in the month of April, after registering significant losses to the dollar. At the beginning of the year, it was trading at 101 shillings to the dollar but lost ground to trade at 107 by end-March. It has however maintained a stable ground for the month of April strengthening as dollar demands rise.
The government of Kenya has come up with a raft of measures to ensure the economy stays afloat in the Covid-19 era. This includes reducing personal taxes, availing money for certain sectors, deferring bank loans and reducing cash reserves enabling the economy to perform optimally. It has also released cash impounded from corruption deals to be used in the fight against Covid-19.
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Tanzania: Brave face amidst rising Covid-19 cases
Tanzania has been described as the Sweden of Africa in its response to Covid-19. A country that is slow in closing its economic activities despite rising cases of Covid-19. Tanzania has allowed almost all its activities including airport open, until mid-April, when cases surged. For a while, it had maintained that people returning from countries affected must be tested on the port of entry and undergo mandatory 14 days quarantine.
The Dar es Salaam Stock Exchange All Share Index dropped by almost 16 percent in the past month, where the total turnover stood at Tsh5 million ($2,500). There has been a reduction of interest from foreign investors into the bourse as uncertainty rises, not only in Tanzania but a phenomenon recorded across the continent.
Tanzania is however optimistic of better proceeds from gold as global prices have soared during the period. Tanzania has been on an offensive to ensure most of the gold ends up benefiting its citizens. This has pushed international organisations into exclusion. Now, global prices of gold have soared and Tanzania is expecting huge payoffs. Reuters has done checks on Spot gold showing it has climbed more than 10% this year, the most among major assets. Barrick Gold Corp, the world’s largest gold mining company by market value reported an 8.5% drop in its first-quarter gold output due to lockdowns but said last week that it remained on track to meet its full-year production targets.
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Uganda: Oil losses poses bleak future
The biggest news coming out of Uganda indicate that the British oil company Tullow has officially exited the market. This comes after agreeing to a fee with French oil giant Total for its stake in Uganda. Total said in a statement that it will pay $575 million to acquire Tullow’s shares, which accounted for 33.3 percent in Uganda’s oil sector. The French company said it will make an initial payment of $500 million at closing and $75 million when the partners take the Final Investment Decision to launch Uganda’s oil project.
Uganda has proven crude oil reserves of 6.5 billion barrels, about 2.2 billion of which is recoverable. The IMF was quoted in 2013 as saying that these reserves are the fourth-largest in sub-Saharan Africa, behind Nigeria, Angola, and South Sudan.
The sale of the stake by Tullow reduces tension among its shareholders who have in the past attributed a freefall for its shares to lack of a buyer for this market as well as poor markets in Ghana and the Caribbean.
The Uganda shilling has remained strong despite the country having major lockdown which has mainly affected the commercial capital of Kampala. The country has remained low on cases of Covid-19 while its neighbours Kenya and Tanzania have seen a steady rise. Commercial banks have quoted the shilling at 3,800/3,810 for the month of April even as the import budget dwindles.
A new report by global financial investment advisory firm RisCura shows that Uganda has one of the highest stock trading costs in the East African market with a bulk of trading costs related going to brokerage fees. In Uganda, stockbrokers take the largest share of commission at 3.28 percent of the value of the transactions, not only within East Africa but in the entire African continent.
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Rwanda: Designing a social protection model for Africa
When the first case of Covid-19 hit Rwanda, the country rushed to track down the infection and managed to reduce the spread within the first weeks of the outbreak. However, it is not the tracing that has won itself accolades but the social welfare it has accorded its citizens.
While most of African countries are struggling to meet the needs of less advantaged, Rwanda has rolled out a social protection model with door-to-door deliveries of food packs. With a firm lockdown restraining people moving out of their homes, the government has been distributing essentials especially to the urban poor.
The Rwanda Stock Exchange which in April went digital is hoping for glad times. Compared with the first quarter in 2019, the all-share index (ALSI) increased by 10.7 percent and the Rwanda stock index (RSI) reduced by 1.2 percent. Currently, Rwanda Stock Exchange has around 20,800 active investment accounts.
Burundi: Plans in top gear to launch first bourse
The Burundi Investment Promotion Agency has partnered with the Bank of the Republic of Burundi (BRB) to raise awareness among players in the capital markets as it aims to roll out its first stock market. Burundi and South Sudan are the only member states of the EAC which do not have a stock market. A law establishing a stock market in East Africa’s smallest economy was passed in 2018 which has set pace for the roll-out. However, the country is aware of the need to increase public awareness on the benefits of such a market as well as rules and regulations for managing it.
The country has not been greatly affected by Covid-19. However, there is restricted movement which has slowed its economy.
South Sudan: Lots of oil and no one to buy
South Sudan’s economy has been dictated by global oil prices. With an existing dispute in the amount of oil in the global arena and the collapse of oil prices in the US and less demand for the product, South Sudan is staring at uncertainty. With Covid-19, there has been less use of oil with lockdowns and restrained movement. This has affected almost all oil-producing countries, but with countries like South Sudan with fragile economies, the effects will be felt even further.
Initial World Bank forecasts gave South Sudan a favorable economic outlook with growth expected to be in the range of 7.9% during FY2019/20 and exports projected to increase by 23%. However, with revisions brought about by Covid-19, the economy is expected to shrink considerably.
