East Africa’s economic outlook bullish despite Covid-19 setback

The outlook for the East African region remains bullish despite setbacks because of Covid-19. Image credit: WhyAfrica

East Africa’s economic outlook bullish despite Covid-19 setback

East Africa is on the way to recovery after the severe setback suffered because of Covid-19 in 2019 and 2020.

There are many signs that the East African economy is lifting its head after being constrained because of the global pandemic.

According to the African Development Bank’s (AfDB) latest economic outlook report for the region, East Africa’s economic growth is expected to recover to an average of 4.1% in 2021, up from 0.4% posted in 2020. In 2022, average growth is projected to hit 4.9%.

The flagship report, launched on 28 October, reviews the socio-economic performance of 13 countries namely Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania, and Uganda.

According to the report’s findings, Covid-19 containment measures and global supply and demand disruptions hit businesses and livelihoods hard and increased poverty, while political fragility in some countries and limited economic diversification in others were significant impediments to growth.

The report, themed Debt Dynamics in East Africa: The Path to Post-Covid Recovery, notes that the rapid recovery of the region is being driven by sustained public spending on infrastructure, improved performance of the agricultural sector, and deepening regional economic integration.

According to the report, some countries are moving toward a more service-oriented economy, while other are experiencing deindustrialization.

To accelerate recovery and build post-Covid-19 resilience, the report recommends that countries accelerate structural transformation through digitalisation, industrialisation, economic diversification and consolidation of peace, security, and stability.

East Africa’s economic outlook bullish despite Covid-19 setback

In his keynote address at the launch, Somali Finance Minister Abdirahman Dualeh Beileh warned the pandemic could continue to impede progress toward inclusive growth.

“The contraction of economic activities, increase in fiscal deficits due to high public spending to respond to the Covid-19 pandemic amidst reduced public revenues, and exchange rate depreciation following reduced income from commodity exports, created fiscal and debt distress risks in the region in 2020,” said Beileh.

The outlook report projects a full recovery from 2023, due to the increased roll-out of vaccines, recovery in the global economy, rising commodity prices, and growing economic diversification in the region.

“A mix of policy interventions is needed to accelerate East Africa’s economic recovery and build post-Covid-19 resilience. These include scaling up vaccinations, designing and implementing economic stimulus packages and stabilising public debt by dealing with debt related to state enterprises, among others,” said Nnenna Nwabufo, the African Development Bank’s Director General for East Africa.

She noted that the region’s resilience in 2020 was due to relatively higher economic diversification and governments’ swift policy responses to counter the pandemic’s impacts.

Still, Marcellin Ndong Ntah, a lead economist at the African Development Bank, warned that the risks to the region’s positive outlook remain substantial due to the uncertainties surrounding the longevity and severity of the pandemic, the slow uptake of vaccines, rising global oil prices for the non-oil exporting countries in the region, the slow pace of structural transformation, conflicts and civil unrest, and weather-related shocks and locust invasions in the region.

Emmanuel Pinto Moreira, Director of the Bank’s Country Economics Department, said many East African economies continue to need short-term debt relief and emergency external financing from multilateral lenders. He added that many had received budget support under the Bank’s Covid-19 Response Facility, and emergency financing from the International Monetary Fund.

Economic experts attending the launch called for better economic governance, notably clearing domestic arrears, improving debt management and transparency, and dealing with debt related to state-owned enterprises.

“For countries with substantial external financing risks, innovative financing instruments like non-debt equity, risk-sharing with the private sector, including through collateralisation and increasing foreign investor participation in local-currency debt markets, should be explored to diversify the sources of development finance,” said Edward Sennoga, lead economist at the Bank. This, he added, will insulate the region’s economies from global volatility shocks.

Louis Kasekende, Executive Director of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa, pointed out that policies to diversify public financing sources, improve public revenue mobilisation and prioritise infrastructure investments will be critical to ensure debt sustainability. “Public debt, if used correctly, can help boost essential services, leading to improved economic growth,” he said.

Read the report here.

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