The economies of the East African region have for a long time recorded impressive growths among other African peers. They have been expanding at an average rate of 6.3 percent, with that of Rwanda expected to lead at eight percent from 7.8 percent. This growth, however, is facing one of its biggest challenges with the emergence of the Novel Coronavirus, scientifically referred to as COVID-19 as well as local challenges including political processes and the recent locust invasion. These effects are likely to cut down on any projected growth and gains made over the years. Kenya, the largest economy in the region, will most likely be hit hard with the halting of international flights and tourism. The bourse has already recorded a bear run, similar to other markets in the region. Burundi and Tanzania are preparing for elections, Kenya is seeking constitutional changes and Uganda is looking for ways to rejig its relations with Rwanda.
Kenya: Exit desert locust, enter Novel Coronavirus
The year 2020 has not started particularly well for Kenya. The devastation of desert locusts has been felt across the country with the government using massive resources to counter the marauding pests, sweeping anything on the way. This has affected the agriculture sector, and according to policy analysts, the effects of the pests and the devastation they have caused will be felt over a few months and likely to affect inflation as food crops, dairy and beef industry are greatly interfered with.
Exit desert locust and enter COVID-19. Kenya is likely to be affected least in terms of actual persons affected by the virus as the government moves in to instill strict measures. However, what the country saves on the infection, it loses on the economy. The country announced partial lockdown as it moved to stop the spread and with that, the economy, one with the lowest growth in the region, is feeling the heat.
According to South Africa’s Rand Merchant Bank, Kenya’s economy has the highest overall COVID-19 risk score. This is due to its strategic location as a regional transport hub for landlocked Uganda, Rwanda, Burundi, Democratic Republic of Congo (DRC) and South Sudan. Thus, experts warn that the effects of the recent cancellation of ships scheduled to dock at the port of Mombasa is bound to reverberate across the Eastern African region.
The Nairobi Securities Exchange (NSE) has already experienced a major dip, with the bourse shedding off half a trillion in just a few days of trading. At the beginning of March, the bourse’s total worth was standing at KSh2 trillion (US$19.3 million) compared to KSh 2.6 trillion (US$25 million) at the beginning of the year. Safaricom, KCB Group, Equity Group and East African Breweries (EABL) accounted for about 72 percent of their worth. The dip is attributed to the exit of foreign investors and failure by local investors to take up any shares.
With the increase of risks associated with Coronavirus, the economy is expected to get a real hit despite the World Bank agreeing to give Kenya up to KSh8 billion to counter desert locusts and Coronavirus. The COVID-19 Financing Facility will avail $50 million (KSh 5.15 billion) and the Contingency Emergency Response Component of Transforming Health Systems for Universal Care Project will give an additional $10 million (KSh 1.03 billion).
Despite this, Kenya’s finance cabinet secretary Ukur Yatani noted that the country will be affected by inflation at some point. To solve this, the government hopes that the standby KSh150 billion facility promised by Bretton Woods Institution would shield the country. As it stands, Kenya has a forex reserve import cover of up to 5.8 months. This has also been eased with global oil prices falling record levels as disagreements reign within oil-producing countries under OPEC. The government was, however, cautious in reducing the monthly pump prices with a slight decline.
Tanzania: Bubbling construction and mining sector shield against Coronavirus effects
Tanzania has not been greatly affected by the COVID-19. However, just like Kenya, its economy is greatly integrated into global trends and anything happening anywhere else affects this economy. Equally, the reliance on the Dar es Salam port as a conduit for regional trade will greatly impact the economy. Tourism is a major income earner and the country estimates that the sandy Zanzibar shores will receive less foreign tourists.
The annual inflation in Tanzania stood at 3.7 percent in February, unchanged from the previous month. On a monthly basis, consumer prices inched up 1.1 percent, after increasing 0.4 percent in the prior month. There has been a slowdown in prices for housing and utilities (4.5 percent vs 4.8 percent in January); furnishings (2.2 percent vs 2.5 percent); restaurants and hotels (2.1 percent vs 2.8 percent) and miscellaneous goods and services (1.5 percent vs 1.6 percent). Also, cost advanced at the same pace for clothing and footwear (2.1 percent) and recreation and culture (1.1 percent). On the other hand, inflation edged higher for transport (2.2 percent vs 1.7 percent) and food and non-alcoholic beverages (5.9 percent vs 5.7 percent).
The DSE All Share Index (DSEI) lost 67.32 points closing the week at 1,988.62 points. Major shares that showed a slump include Kenya Airways, which is cross-listed with Nairobi’s NSE. This did not, however, affect the Tanzania shilling which still remains among the top ten most stable currencies in Africa that have fluctuated below 0.5 per cent since the beginning of the year, and leads in East African community. Dar has attributed this to strict monetary policies that have shielded the shilling from external pressures.
The International Monetary Fund has continued to give confidence to the economy in Tanzania with recent projections showing the economy will finish the year strongly at 6 percent. This is as a result of a buoyant mining and construction industry. It has also been prompted by higher public investment, a rebound in exports, and an increase in credit to the private sector.
The growth in the country has been attributed to an increase in local production of construction materials such as cement, iron and steel. This coupled with government investment in major transport infrastructure projects has pushed the country’s economy further up.
The mining sector is also experiencing growth as the government takes full control of the sector after years of contestation with foreign mining companies. Currently, the mining sector’s contribution to GDP is estimated at 3.5 percent. The government expects this to rise to over 10 percent by 2025 surpassing tourism and manufacturing.
Uganda: Increasing surplus electricity export
Ugandan economy has experienced the least difficulties from foreign generated economic pressures. The country was affected by the swarm of desert locusts that invaded most of the arid and semi-arid areas of Eastern Africa. The food basket has however been able to reduce the effects of the pest and the country was not as badly affected, unlike Kenya. Inflation has remained unchanged in the months of February and March but is expected to rapidly rise once the global effects of Coronavirus hit the country. Uganda has also been shielded by the global collapse of oil prices which has been brought about by tensions between Russia and Saudi Arabia and the amount of crude oil each can sell.
The Bank of Uganda (BoU) has been embroiled in controversy over huge losses which it attributes to poor financing by the government. BoU announced late in February that it has seen losses of UShs2 trillion over the past 15 years. The bank also attributed the loss to “abnormally low” rates for US Treasury securities.
The Uganda Stock Exchange has equally responded to the global Coronavirus threat with traders holding onto their investments as global markets all faced a bad trading month. The market has not been as rewarding as expected with securities exchange only recording one corporate bond since 2013. The Ugandan government has been keen to pull local investors to buy into the market with little success.
Uganda is also betting big on exporting surplus electricity. Between January 2019 and January 2020, Uganda exported about 320,372 megawatts of electricity, which earned the country $46m (UShs170b). Uganda’s current installed electricity capacity stands at 1,252.4 megawatts. However, consumption stands at slightly above 650 megawatts during peak hours, which creates a surplus of half of what is generated. At least by the end of 2020, Uganda’s generation capacity is expected to grow to 1,681 megawatts. Uganda exports its electricity to Kenya, Tanzania, and parts of eastern DR Congo.
Rwanda: Apprehension over whether the Commonwealth meeting will go on
The Coronavirus has hit Rwanda more than any other East African country. The number of reported cases has been on a steady rise despite Rwanda putting strict hygiene measures to contain the spread of the virus. With a close-knit economy, the government is working to ensure the effects of the disease are not detrimental to the economic gains made.
Rwanda relies heavily on conference tourism and this has been highly hit with reduced national spending and canceling of events. The country is holding its breath as the main event of the year, the Commonwealth Head of Governments Meeting (CHOGHM) meeting slated for June could as well be postponed if not canceled altogether. Rwanda Development Board (RDB), the entity actively prepared in the organization of the event notes that the country plans to take advantage of the $700m investment and trade deals that will be unveiled at the forum. The 2020 Commonwealth event is expected to bring 53 country delegations, and up to 40 heads of government to attend, alongside several multinational, private equity, sovereign and mutual fund corporations.
Burundi: Seeking stability in an election period
Burundi heads to elections in May, with outgoing president Pierre Nkurunziza expected to honor his pledge and retire. The looming elections are expected to slow growth. GDP annual growth rate for 2020is expected to reach 1.80 percent, according to Trading Economics global macro models and analysts’ expectations. In the long-term, the Burundi GDP annual growth rate is projected to trend around 2.00 percent in 2021, according to our econometric models.
With the global world working to counter the effects of a looming economic recession and reduced spending, Burundi might find the going rough. The economy is highly dependent on foreign aid which accounts for over 50 percent of the government budget.
South Sudan: New government of national unity dawns new optimism
According to the World Bank, Africa’s top performers in 2020 will be led by South Sudan (8.2%). This coupled with the new peace agreement is expected to overturn the negative tide the country has faced in the last few years.GDP annual growth rate in South Sudan averaged -3.46 percent from 2009 until 2018, reaching an all-time high of 15.90 percent in 2014 and a record low of -46.10 percent in 2012.
A new government of national unity was unveiled with Dr. Riek Machar joining the government as vice president ending six years of civil war that has killed about 400,000 people and displaced millions. The war has also led to massive looting and wastage of oil and the proceeds of the natural resource leaving the country impoverished.
South Sudan’s development is pegged on global oil prices as its main revenue is generated by oil sales. South Sudan is one of the most oil-dependent countries in the world, with oil accounting for almost the totality of exports, and more than 40% of its gross domestic product (GDP) according to World Bank.
