East Africa is showing continued good economic performance, but the World Bank forecast a drop in growth rates of about one-third for 2009, with GDP growth in Tanzania forecast to fall to 4.5% and in Uganda to 4%.Sao Hill benefits from a strong construction sector.The local banks were mostly funded by deposits and have not been significantly affected by the international banking crises, even if lending has become tighter during 2009.Due to the lack of a long-term loan market, the construction industry is mostly equity financed and has been less hit by the credit crises than expected.The tourism business, a major export earner, has seen a significant downturn, as have selected commodity markets like cotton and cashew.Investments in the mining sector, a main driver of economic growth in Tanzania, but also Uganda and Mozambique during the last ten years, have come to a halt.
In 2008, GDP growth was 7.1% (7.3%) in Tanzania, 7.3% (7.9%) in Mozambique, 1.7% (7.0%) in Kenya and 6.9% (8.6%) in Uganda, which is marginally down on 2007 for most countries.The exception is Kenya, which was hurt by the election riots at the start of 2008, and this also had implications for Uganda.It should be noted that the 2007 figures were revised upwards by on average 0.5 percentage points compared to those published in our last report.Since 2000, GDP growth has averaged 8% in Mozambique and 6-7% in Tanzania, 6% in Uganda and 4% in Kenya, making them among the most successful African economies, and East Africa the fastest growing region of Africa.
Mozambique has been one of the world’s most rapidly growing economies over the past decade, with much of the impetus coming from reconstruction efforts and extensive foreign investment in projects based on natural resources.Key sectors contributing much to the performance of the economy include industry, the service sector, agriculture and fishing.
Prudent macroeconomic policies and the growth in the mining sector, as well as the construction and telecom industries, account the most for the success in GDP growth in Tanzania. The electricity (mostly hydro power) supply situation has been better during the last two years due to good rainfall.However, drought in the key food producing regions during 2008 is now creating uncertainty about food supplies. The economic growth in urban areas of East Africa is significantly higher than the overall growth. Mafinga, the town located close to Sao Hill, is believed to have experienced 10-15% pa economic growth during the last few years.
The Ugandan economy has continued to grow rapidly in recent years. Telecommunications has been the fastest growing sector as a result of the growth in mobile phone subscribers, while the agriculture and horticulture sectors have also done well.The horticulture sector is now experiencing a downturn.
Good FDI and ODA
Total foreign direct investments (FDI) attracted to East Africa was USD 889mn in 2006. Tanzania attracted the largest share, USD 377mn in that year, mostly driven by the mining sector.Uganda is the second largest destination for FDI followed by Mozambique attracting USD 307mn and USD 154mn respectively.Kenya attracted USD 51mn.
Official development assistance (ODA) has been increasingly flowing into the East Africa region.In absolute terms, ODA into the region has increased by 50% over the last decade from an average of USD 750mn in 1996 to an average of USD 1,483mn in 2006. In 2006, the East Africa region where the company operates attracted ODA amounting to USD 5,930mn compared to USD 3,035mn attracted ten years earlier.In 2006, Mozambique received the highest percentage of ODA (as a ratio of GDP) at 24%, followed by Uganda and Tanzania, which received 17% and 14%, respectively.Kenya received 4% during the same year.
Falling exchange rates
After some appreciation in 2007, all East African currencies depreciated against most international currencies in 2008.However, the weak Norwegian krone lead to translation gains for Green Resources’ financial accounts.
The Tanzanian shilling has steadily depreciated over the last decade, typically at a rate of 5-10% pa against the US dollar, but experienced relative stability since 2005.The Ugandan shilling experienced periods of appreciation as well as depreciation between 2001 and 2005, but since 2006 the currency has been appreciating against the US dollar.The Mozambique metical was stable for five years following 2001, but depreciated by 20% by the end of 2006.But, since 2006 the metical has maintained strong appreciation against the US dollar. The Kenyan shilling has appreciated steadily since 2001, but has depreciated during the last two years.
Inflation under control?
Inflation moved down to single digits at the end of the 1990s and bottomed out at 4-6% in Tanzania and Uganda from 2004-07.Since then, inflation has edged upwards in both countries. Inflation increased sharply in 2008 following a mixture of more expansionary fiscal policies, higher food prices and imported inflation, in particular from oil, but also due to the depreciating currencies.Inflation peaked at 26% in Kenya, 12% in Uganda, 10% in Tanzania and 8% in Mozambique.
Annual interest rates have shown a general downward trend in East Africa for a long period.Money market rates fell to 8% in Tanzania in 2008, down from 13% in 2007, but remained high at 16% in Uganda. Tanzanian interest rates have moved back up in 2009 and continue at a high level in Uganda.