In March 2024, the East Africa Business Council (EABC) estimated that the economic growth of the region is likely to rise up to 5.1 in 2024 and 5.7 by 2025. The Council said that the increment results from the growth of the service sector, investments in infrastructure, and the diversification of the agricultural and manufacturing sectors. The East African bloc seems to be on a growing trajectory, with Somalia recently depositing its instrument of ratification to officially become the 8th member of the Council, while Ethiopia is also set to join the intergovernmental organization in the near future. However, many challenges continue to hinder this desired trajectory.
Despite these challenges, a report presented on 5 March 2024, during a CEO roundtable discussion organized by the EABC, shows that the region will continue to lead the pace.
“We are looking at the high level of resilience rebound of our economy from external shocks: COVID-19, conflicts and climate change. Based on various reports – the Africa Development Bank Report 2024 and IMF report – both talked of EAC posting 5.1% average GDP growth by 2024 and 5.7% by 2025. There is no other region on the continent posting such a growth,” said John Bosco Kalissa, EABC’s CEO.
Indeed, according to the African Development Bank, Northern Africa is projected to remain at 3.9% in 2024, with an increase of between 0.2% and 4.1 % in 2025. Similarly, the Economic Community of West African States (ECOWAS) economic growth is estimated to rise from 4% in 2024 to 4.4 in 2025, while the anticipated growth of the Economic Community of Central Africa States (ECCAS) is expected to be 3.5 per cent in 2024, with a subsequent improvement to 4.1 per cent in 2025. Southern African Development Community (SADC) Economic Bloc is struggling with a low growth trend, with the anticipated real GDP growth projected to rise from an estimated 2.2 per cent in 2024, showing a modest improvement to 2.6 per cent in 2025.
However, experts pointed out that poor saving culture, the lack of common currency, or our reluctance to use local currencies to trade within the East African region, are some of the setbacks to the projected economic growth.
“Within East Africa, the major trading currency is the dollar. Why do we sell to each other in dollars? Why don’t we have settlements in our local currency? Even if it means 10, 15 or 20 per cent of our total imports and exports, it will reduce the call on dollars,” decried Ashif Kassam, Executive Chairman of RSM, a Network of assurance, tax, and consulting experts.
The process of harmonizing key policies to attain the much-anticipated common currency by the end of 2024, as outlined in the EAC monetary union protocol signed in November 2013, might take a little bit longer than expected. But whenever this common currency regime comes into force, it will create a big bridging gap for its member states to do business freely and project a positive impression on external investors.
Speaking during an interview on 13 March 2024, Rwandan East African Legislative Assembly (EALA) MP, Hon. Fatuma Ndangiza, who was in Nairobi for the East Africa Legislative Assembly sitting, said that there have been delays in the operationalization of the EAC monetary union by the member states.
Factors contributing to the economic growth in East Africa
There are both internal and external factors that could contribute to achieving a 5.7% economic growth rate in the region by 2025.
“The prolonged shortage of oil products and the effects of Russia’s invasion of Ukraine could negatively affect the economy. But if there is peace in Ukraine and Gaza, it means that the price of fuel would go down and by extension that will have a positive effect on the economic growth,” Economist Professor XN Iraki said.
He also adds that if China’s economy does well, then it will definitely have a positive impact on the East African bloc.
“China has become one of the locomotives of the global economy and so if it does well, it drags the rest of the world together with it,” Iraki adds.
Furthermore, the fact that the region is along the equatorial geographical belt that supports agricultural activities is a comparative advantage over other regional blocs. Some EAC member countries have adopted state-of-the-art agricultural methods and policies aimed at ensuring high and sustainable economic growth, food security, and a reduction in poverty levels.
“If there is rain in East Africa, the economy does very well because there is food and people will be productive,” Iraki further explains.
He, however, adds that some policies should be put in place in order to attain the desired growth. He advised that policies aimed at attracting direct foreign investors and creating a conducive environment for business should be prioritised. The introduction of fiscal policies, which touch on taxation and interest rates, and trade policies, which touch on export promotion and trade liberalization, will facilitate the free movement of goods and services among member states.
“If each of these countries has good Internal policies and the policies are followed through, then I see economic growth,” Iraki assures.
For instance, Tanzania, for the better part of last year, attracted increased foreign investments after the parliament passed the 2022 Investment Act to boost the country’s economy.
“Statistics show that from January to March 2023, we have received more than 90 projects that have generated about 1.2 billion dollars,” said the CEO of Tanzania Investment Centre, Gilead Teri.
Teri added that if there is more peace on the borders of East African countries, then definitely that means that the economy will thrive because there will be more trade within the East African countries and their neighbours.
Issues of insecurity have been a major threat to the region’s economic growth, significantly affecting current and future member states like Somalia, Ethiopia and the Democratic Republic of Congo. Neighboring South Sudan has also been battling insecurity for quite a long time. However, these countries’ economies have kept on growing despite these issues. The EAC might consider harmonizing the security structures of their member states which would help them realise their goals.
“If we have these countries coming together and put[ting] their resources in one basket, I believe that we would have a combined effort in dealing with this insecurity. We should see insecurity as a challenge that prevents us from growing more than what has been projected. This will help us get resources to deal with matters of insecurity in all the countries in the economic bloc,” anticipates George Musamali, a security analyst.
