The latest indicators suggest a broad-based recovery is on the cards in East Africa following a relatively robust economic performance last year. As a region as a whole, the latest figures from NKC African Economics suggest East Africa was able to eke out a 1.2% real GDP growth rate last year.
EASTERN AFRICA ECONOMIC OUTLOOK
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Regional Developments
The latest indicators suggest a broad-based recovery is on the cards in East Africa following a relatively robust economic performance last year. As a region as a whole, the latest figures from NKC African Economics suggest East Africa was able to eke out a 1.2% real GDP growth rate last year. This is a commendable performance considering that all other regions are estimated to have recorded contractions: Southern Africa (-7.0%), North Africa (-6.0%), the Franc Zone (-2.7%), and Central & West Africa (-1.8%). However, the 1.2% expansion is much lower than the projected growth rate of 6.0% for 2020 than we had pencilled in at the start of last year, indicative of the foregone economic growth wrought by the Covid-19 pandemic.
We expect a strong recovery across the board in 2021, although it should be noted that downside risk related to Tanzania’s management of the Covid-19 pandemic and ongoing conflict in Ethiopia could weigh on both regional growth and foreign direct investment over the short term. The projected regional growth rate of 4.6% in 2021 for East Africa is stronger than that of all other regions except for North Africa (6.1%), although base effects should be considered when assessing the latter growth rate following the 2020 economic collapse in that region. Here, again, this 4.6% regional growth rate is rather disappointing when compared with the pre-coronavirus projection of a 5.8% East Africa GDP expansion in 2021. The rate of recovery is expected to be stronger in East Africa than in most other regions on the continent, but it will still take some time for these economies to regain momentum and get back to the remarkable growth rates witnessed over the past decade.
East Africa’s strong growth prospects are expected to translate into a relatively robust recovery in foreign direct investment (FDI). After dropping to 1.3% of GDP in 2020, net FDI into East Africa is expected to reach 1.6% of GDP this year, before again breaching the 2.0% of GDP threshold in 2022. From a regional perspective, East Africa’s performance with regard to FDI is expected to be second only to the Franc Zone in 2021 (2.2% of GDP). In nominal terms, net FDI into East Africa is expected to reach $5.3bn this year, up from $4.4bn in 2020. This is relatively low when compared with the North Africa figure of $10.9bn for 2021, slightly lower than the corresponding figures for Central & West Africa ($5.4bn) and Franc Zone ($5.6bn), but higher than the Southern Africa figure ($3.8bn). when compared to pre-coronavirus projections, all regions will see much lower investment, with East Africa at the time expected to see $10.2bn in FDI inflows last year before an increase to $11.5bn in 2021. From a country perspective, Ethiopia, Kenya and Tanzania are expected to remain the main FDI destinations over the medium term.
Detailed country economic reports containing forecasts and analysis are published in the full report by NKC African Economics in a separate document, as a supplement to the newsletter.
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