East Africa primed to grow further, faster

EAST AFRICA, the fastest growing region in Africa, is slated for further rapid growth. Economic conditions favour such a growth say economists. The region has rebased it GDP which found that the economies of Uganda, Tanzania and Kenya were larger than previously estimated.

 The region’s wealth is 24 per cent larger than previously estimated. Currently, it is US$ 23.4 billion higher.  Before rebasing, the regional wealth stood at US$98 billion as at the end of last year. Now it stands at US$122 billion. And going by the fact that economic growth rates were found to have been higher than previously estimated, it is expected to be higher than previously estimated by the end of the current year.

 Kenya is still the leader as her total national wealth was $55.2 billion at the beginning of the year. This forms 45.3 per cent of the total regional wealth. Tanzania is second commanding 35 per cent (US$42.5 billion) of the regional wealth while Uganda is third at 20 per cent (US$24.6 billion).

As a consequence of the growth in regional wealth, the regional debt to GDP ratio has declined from an average of 47.6 per cent to an average of 39.1 per cent. Uganda was the more cautious borrower of the three with a national debt to GDP ratio of 39.8 per cent before the rebasing of the GDP accounting year to 2009/10.

 After rebasing this ratio decline to 29.2 per cent- a huge decline by any standards.  It was Uganda’s cautious borrowing approach that dragged the GDP-debt ration down both before and after rebasing. Tanzania was an aggressive borrower with a GDP-debt ratio of 53 per cent which declined to 42 per cent after rebasing. Kenya on the other hand had GDP-debt ratio of 50 per cent which decline to 46 per cent after rebasing.

The implication here is the debt ratio is comfortable and the countries can even borrow more to finance their development projects especially in the high impact infrastructure development. If spend prudently, any new debt will be manageable in future for the projects developed will generate further growth. Uganda is still grappling with  how to raise US$8 billion to build her section of the Northern Corridor Standard gauge Railway running from Kenya’s port of Mombasa to Kigali in Rwanda via Uganda.
  Kenya and Tanzania need additional funds to finance their infrastructure projects in transport and energy sectors. Kenya is the first off-the blocks having borrowed an estimated US$3 billion this year alone through sovereign bonds. The money will be used to finance energy and logistical infrastructure. Tanzania is revving to float a US$1 billion Eurobond next year.

 Another potential gain from rebasing the economy is the signal that each country can generate more domestic taxes to finance their budgets. The GDO tax ration has fallen from an average ratio of 19 per cent before rebasing the economies to 15 per cent after the rebase. Again Uganda was more cautious. Her GDP-Tax ratio stood at 13 percent before rebasing shrinking to 11.8 per cent after rebasing. Her neighbours were both in early 20s. This means that the governments should widen the tax next to generate more taxes internally to finance their budgets. This would mean further independence from meddling donors.

The three countries will finance on average, 76.5 per cent of the current budget from domestic sources. This is a major leap compared to 10 years ago when the region financed only about 55 per cent of their US$11 billion budget. Only Kenya, the largest economy in the block could finance her 2004/05 $6.7 billion budget from the domestic sources. Tanzania, whose budget in 2004/05 stood at $2.5billion, could finance only 59 percent of her budget from domestic revenue. Ten years later, Tanzania will finance to 61.4 per cent of a budget that is five times larger. The current budget stands at US$12 billion while domestic revenue will stand at US$7.4 billion.
Uganda, which financed 54 per cent of her budget estimated at US$1.8 billion ten years ago, will finance 82 per cent of the 2014/15 budget which is three times larger. The current budget stands at US$ 5.8 billion while the domestic revenue will stand at $4.8 billion.

Kenya for her part will finance 86 per cent of her US$20 billion budget from domestic revenue. This is to say she will raise some $17.7 billion from domestic revenue. This is a decline from the previous level where she funded 96 per cent of her budget which was a third of the current budget. The budgets are a confirmation that East African economies have been on a growth trajectory over the past decade creating opportunities for economic players, putting more money in people’s hands and reducing poverty.

 Now, east Africa can finance a larger proportion of their budget from domestic sources which will ensure prompt project delivery.  Donor funding is the cause of under development in Africa because the funds pledged are not delivered on time to complete the projects in question.


Coupled with the new ability to borrow more, the new larger tax base will ensure rapid development in the region if prudently managed.

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