The first quarter of 2020 has had mixed results for the economies of East Africa. The weather, a key determinant of inflation rates, has been good. Forex rates have remained stable in the region as a balance between dollar demands and diaspora remittance has been easily reached. Eastern Africa is one of the regions in Africa with the highest growth rate and this has remained so in the first two months of the year, with Ethiopia and Rwanda still in the driver’s seat. In terms of foreign direct investments, Kenya and Ethiopia are still the leading pack, with Kenya receiving investments in ICT and manufacturing while Tanzania is receiving investments in mining. Rwanda is a leading conference destination and Uganda is receiving investments in renewable energy as well as in oil and gas.
Kenya and Rwanda are still leading in developing policies that promote trade and investments, while Ethiopia is also making efforts to reform the financial sector after many years of government dominance. In terms of politics, East Africa is already in election mood. Burundi, Ethiopia, Somalia and Tanzania – are scheduled to hold elections in 2020. Kenya does not have a scheduled election this year but a divisive referendum is in the cards as the country seeks to introduce political and constitutional amendments.
Kenya economy seeking more diversity
Kenya’s economy still remains one of the most diverse in Africa with national revenue generated from manufacturing, service, telecommunication and agriculture. It is highly ranked among its peers in terms of attracting investors as well as offering a return on investments.
However, the country is not satisfied with the hold it has on the regional economy and is working on tying down two global trade pacts, one with the US and a post-Brexit agreement with the UK. President Uhuru Kenyatta, buoyed by his legacy setting agenda of Big 4 has had engagements with the British Prime Minister Boris Johnson on drafting a post-Brexit pact that will see Kenya receive investments from the UK in housing, manufacturing, agriculture, and health. The president also has sealed a deal with US President Donald Trump in February meant to increase trade between the two countries beyond AGOA.
Currently, trade between Kenya and the US stands at about US$1billion a year with over 70 percent of Kenya’s export to the expansive American market in 2018, worth US$466 million, entering under AGOA.
Kenya is seeking to expand its manufacturing sector which already dominates its trade with other East African countries. The period in review however experienced trade dispute between Kenya and Uganda regarding milk imports. Kenyan farmers have been lamenting of cheap milk and egg imports from Uganda affecting their trade.
The Kenya shilling has managed to remain stable in January and February. The shilling opened the year strongly trading at 100.7 and has marginally lost ground to 100.4 which financial analysts feel is commendable given the dollar’s strength brought about by effects of the corona virus. There is however the notion that the Central Bank of Kenya has over-valued the shilling, a notion that has refused to go away.
Kenya is keen on attracting more investments with the coming into force of new rules on mergers and acquisitions. The Competition Authority of Kenya (CAK) has finally effected the changes of the 2019 regulations on mergers. The Rules also seek to change the current practice in Kenya and bring it in line with international best practice whereby competition authorities only have authority over mergers that have a substantial effect on competition in the relevant jurisdiction. The new Competition (General) Rules, 2019 came into force on 6 December 2019 and investment companies and law agencies are reviewing what the rules hold for one of the most active markets for mergers in the continent. Key among the new threshold regulations is the waiver of the need to notify CAK of mergers conducted by small and medium enterprises or those organizations that have already notified or met the requirements of the Common Markets for East, Central and Southern Africa (COMESA).
It is not all glossy for Kenya though. The infestation of desert locust has had a negative effect on the farmers and herders in northern Kenya. Locusts have destroyed crops and pasture and the effects in the Horn of Africa will continue being felt for a long time.
Tanzania is back to enjoying mining revenue
After a long and protracted dispute with Canadian miner Barrick, the government of Tanzania has pushed ahead with plans to have control of the mining industry. The mining industry has been wary of the government moves but has remained put as the government introduces reforms to ensure the economic benefits from the proceeds of the mineral sale.
Barrick Gold, after agreeing with the government has moved ahead to increase investments in mining and exploration. The company said it had budgeted $50 million for brown and greenfield exploration in Tanzania in 2020. The Tanzanian government on its side, aware that there could be other disputes with mining companies that have published mediation laws. A key part of the draft Bill for the proposed 2020 Arbitration Act, tabled in parliament on January 28, includes clauses allowing investors to access international arbitration.
The overall price of goods and services has reduced in Tanzania as the annual headline inflation rate for January decreased to 3.7 percent from 3.8 percent recorded during the corresponding period in December 2019. The Bank of Tanzania expects this rate to continue improving unless hit by external issues.
The Dar es Salaam Stock Exchange saw unexpected high run with foreign investors making a comeback injecting TSh1.2 billion (US$519.7 million) in shares for Tanzania Breweries Limited (TBL). This contributed to the rise of the bourse’s total turnover, which reached TSh1.23 billion (US$532.7 million) with foreign purchase contribution of 99.21 percent while locals bought the remaining 0.79 percent.
Tanzania will be going to the polls later in the year and this might have a hit on the economic growth as well as inflation. President John Magufuli is expected to battle out with opposition leaders, though in an expected peaceful poll that might not have a great impact on the economy.
Tanzania was a surprise inclusion in the number of countries in Africa that will receive visa bans from the United States. The ban means that Tanzanians are no longer eligible for green card visas but can still visit the US through other visas. This is likely to affect the relations between the two countries in terms of the free flow of persons.
In terms of infrastructure, Tanzania has been keen on rolling out a railway improvement program which includes introducing Standard Gauge Railway. The government has announced that it has reached a deal for a US$1.46 billion term loan financing to fund the construction of the Standard Gauge Railway (SGR) project from Dar es Salaam to Makutupora.
Running approximately 550 kilometers long, the SGR project is one of the country’s biggest projects connecting Dodoma to Dar es Salaam via Morogoro and Makutupora. Once complete, the SGR Rail project will provide a safe and reliable means for efficiently transporting people and cargo to and from the existing Dar es Salaam Port.
Uganda still hopeful for petrol dollars
Uganda was the first country in East Africa to discover commercial deposits of oil, followed by Kenya and later Tanzania discovered offshore gas. However, Kenya has already enjoyed its first export of crude oil compared to Uganda which is still negotiating for a refinery as well as a pipeline. France’s Total, UK-listed Tullow Oil and the China National Offshore Oil Corporation jointly control three oil blocks.
Recent developments in January and February have seen the UK explorer experiencing critical financial health which has threatened the life of the fledgling oil industry both in Kenya and Uganda. In Uganda, the company has already cut back on its operations and shown willingness to dispose of a huge part of its stake in the country’s oil industry. Tullow’s financial struggles are attributed to a drop in revenue from its Ghana operation, and delays in operations and sale of its stake in East Africa.
However, the Ugandan government is keen on ensuring local participation in the oil business. Uganda National Oil Corporation has signed a deal with Stanbic Bank Uganda to provide credit to local companies who have an interest in tapping on the opportunities presented in the oil and gas sector.
In the financial sector, the World Bank is asking the Ugandan government to stop granting unnecessary tax exemptions because they are eroding a vast tax base that would otherwise bring in huge returns. The World Bank said this has denied Uganda an opportunity to increase the country’s tax ratio to the GDP, which remains low compared to other countries in sub-Saharan Africa and East Africa.
The Uganda Bureau of Statistics reported 3.4 percent inflation in January, from 3.6 percent in December.
Rwanda’s sovereign bond makes ripples abroad
Rwanda and the World Bank announced that they have issued a $40 million bond of its first kind in Rwandan Franc with Citi Bank as the lead manager. The bond is listed on the London Stock Exchange. The RWF-denominated bonds, listed for at least two weeks offered investors an annual coupon of 9.25% and are payable in US$. This bond offers foreign-based investors the confidence of venturing into the Rwandan market with a currency fluctuation shield. This comes after Standard & Poor (S&P), an international financial services company, maintained Rwanda’s rating at “B+”.
Buoyed by an economy that is growing fast and appetite for infrastructure, Rwanda is keen on establishing a foreign currency reserve. The economy is expected to grow by 8% this year and in 2021 versus an estimated 8.5% in 2019, boosted by private investment and trade.
Rwanda is developing its infrastructure in readiness for the 26th Commonwealth Heads of Government Meeting (CHOGM) meeting later in June. The government has set aside up to Rwf10billion ($10.5 million) to improve and build the infrastructure needed for the event. Up to 10,000 delegates from all the 53 Commonwealth countries are expected to attend the event.
Burundi’s upcoming election making everyone busy
Burundi’s economy, mainly controlled by agriculture has not had a good period for decades. The economy is projected to grow 3.7% in 2020 and 4.3% in 2021 on the back of higher coffee exports, a slight increase in public investment, an average growth of 6% in food production, and steady, prudent monetary policy. The central bank has initiated significant regulatory reforms in exchange rate policy, which could relieve pressure on the country’s foreign reserves.
The country is, however, treading on a cautionary path as it awaits a general election later in the year. The incumbent, President Pierre Nkurunzizais expected to exit the stage after years of reign. His exit sets the stage for a new head who is expected to introduce new policies for economic growth. Analysts, however, feel there might be little or no change in fiscal and monetary policies for a long time to come.
South Sudan gets a new Central Bank governor
President Salva Kiir announced the promotion of former deputy governor of the central bank Jamal WaniAbdalla, a long-time ally of the president, to replace Dier Tong. This is the third time a new governor of the central bank is appointed in three years as Kiir fights to jumpstart the economy which relies heavily on oil exports. Abdalla is expected to introduce tough measures to heal the economy of Africa’s youngest nation after years of war and internal strife. The IMF forecasts South Sudan’s GDP will expand at 8.1 percent in the 2019/20 fiscal year from 3.4 per in 2018/19. The rise is expected to arise from a strong showing of oil and agriculture.
The country, like its northern neighbor has been fighting a resilient black market that often destabilizes the local currency, South Sudan Pound.
