Low commodity prices, regional integration and diversification cited as ‘sources of resilience’
East African nations should take advantage of their strong economic growth to attract foreign investment at time when the continent’s commodity exporters are grappling with their worst downturn in years, Kenya’s central bank governor said.
Sub-Saharan Africa’s growth is forecast to slide to 1.6 per cent this year — its lowest level in almost two decades as the slump in mineral and oil prices has battered some of the region’s largest economies, including Nigeria, South Africa and Angola. But east African nations, which are oil importers, are providing a rare bright spot as they boast some of the world’s fastest expanding economies.
Patrick Njoroge, the governor, told the Financial Times that low commodity prices, regional integration and the diversification of east Africa’s economies were “sources of resilience” for the region.
“We want to exploit them. We will do that by investors coming in, The economy has to be driven by the private sector,” he said. “That confluence of factors is making what would appear to be a perfect storm, a positive storm. It won’t last for ever and it will only be there in terms of opportunities for a period of time.”
Kenya, east Africa’s dominant economy, is forecast to grow about 6 per cent this year, while neighbouring Tanzania and Uganda are expected to expand by 7 per cent and 5.6 per cent, respectively. In contrast, Nigeria, Africa’s top oil producer and most populous nation, is enduring its first recession in more than two decades, while growth in South Africa, the continent’s biggest mining destination, is expected to be flat.
Mr Njoroge said a major driver of his region’s success was the deepening links between the members of the EAC, the trade group formed in 2000. It comprises Kenya, Tanzania, Uganda, Rwanda, Burundi and, since earlier this year, South Sudan.
Apart from South Sudan, where the economy has collapsed amid civil war, the countries are net oil importers and do not rely on commodity exports. Instead, their economies are becoming increasingly linked through customs unions and lower tariffs.
The International Growth Centre, a research body based at the London School of Economics, reported this year that bilateral trade between the bloc’s members had increased 213 per cent on average as a result of the EAC’s customs union.
But the EAC is not always united. Tanzania is refusing to sign an economic partnership agreement with the EU, claiming it will undermine its manufacturing base. If the deal is not signed Kenya, as the only middle income economy in the bloc, will face tariffs of more than 20 per cent on some goods, putting tens of thousands of jobs at risk.
Mr Njoroge said EAC members have also learnt from the EU not to push political union too fast.
“If you let the politics run too far ahead then you end up having bigger problems that you cannot resolve,” he said.
The former International Monetary Fund economist also warned that the “confluence of positive factors” would not persist unless policymakers prioritised “sharing out the dividends of growth”.
He said people’s expectations, particularly the youth, were not being met.
“If you don’t do this well then we’ll end up having a Tunisia kind of operation,” Mr Njoroge said, referring to the uprising in December 2010 that led to the Arab Spring. “What I worry is that the expectations of a young man here today are very high and we have to match those expectations in terms of giving them opportunities.”
Kenyans will vote in elections in 2017 and the opposition led a number of protests this year, raising fears of a repeat of the politically motivated violence that followed disputed 2007 elections. But Mr Njoroge said he thought politicians had learnt from previous polls and would refrain from inciting clashes.
He also predicted the country’s economic policies would be unlikely to change regardless of who wins because he had yet to hear any potential candidate articulate an alternative vision.
[The Financial Times]