East AfricaEconomy

East Africa Growth Outlook the Best in Region with $450bn combined GDP

East Africa has a combined real GDP of about USD 450 billion, roughly 14.8% of Africa’s real GDP (Trading Economics estimates), and a population of about 380 million or almost a third (28.4%) of Africa’s total population as of 2022 data.

The region is made up of 13 sovereign states; Kenya, Ethiopia, Uganda, Seychelles, Tanzania, Burundi, Rwanda, Somali, Sudan, Southern Sudan, Djibouti, Comoros and Eritrea according to the African Development Bank and her subsequent reports.

The Africa’s Macroeconomic Performance and Outlook – 2023, estimates Africa’s average real GDP of almost USD 3 trillion to stabilize at 4% in the next two years, up from 3.8% in 2022.

According to Kevin Urama, the African Development Bank VP and chief economist, Africa economies remain upbeat despite multiple shocks occasioned by increased inflation rate, currency depreciation, political unrests, election cycles, macroeconomic imbalance and servicing of the public debt.

The East Africa region recorded a contracted real GDP growth from 4.7% in 2021 to 4.4% in 2022, only lagging Central Africa growth rate of 5.0% for 2022. 

This growth rate in Central Africa was triggered by increased commodity prices. The North Africa region recorded 4.1% while West Africa and South Africa regions recorded growth rates of 3.8% and 2.7% respectively according to the report by the bank.

The East Africa growth was heavily supported by the service sector which contributed 2% ahead of agriculture with 1.1% while industry had 1%.

The 2% contribution by the service sector was however lower than 2.5% contribution the previous period, indicating the high potential the region has within the sector.

The service sector’s contribution to almost half of the recorded growth rate was triggered by first, the region being considerably peaceful during the period albeit a few pockets of unrests in South Sudan, and having a wide range of tourist attraction sites. This has pushed the consumption on the demand side due to accommodation, food, entertainment and also transport.

Second, urbanization in Africa is growing and in return an increase in transport, communication, wholesale and retail of the household consumption demand side. 40% of the population in Africa live in urban areas and this is expected to move to 60% of the projected 2.5 billion BY 2050. Holding other factors constant, the demand can only expand.

Third, due to the increase of the middle class and lower middle class in the region, there has been an accelerated demand of banking, insurance and healthcare services further pushing the consumption side higher.

The agriculture sector was largely affected by climate change in parts of the region specifically Kenya, South Sudan, Sudan, Somalia and part of Ethiopia, while the industry side has relatively remained lower.

The East Africa region is however projected to accelerate to 5.1% in 2023 and later to 5.8% in 2024. This will be the highest within the region the report states.

To sustain a growth momentum, the service sector, which is yet the most volatile, needs to be natured more to exploit its full potential. Support in the innovation, research and development space is required by and from the stakeholders.

The climate change and erratic weather condition has made agriculture unsustainable especially in Africa as the practice is mainly rain-fed. To improve in this, climate-smart agriculture pillared by research on better breeds and farming practices is key to improved productivity.

The region should further harness green industrial revolution to improve in the industry sector. Rarely would a region prosper ignoring manufacturing and industrialisation which is pivotal in any sustainable economy. The region should also take full advantage and play in a key role position in the AfCFTA marketplace.   

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Murungi Ndai

Mr. Ndai is an experienced public sector economist, experienced in sub-nationals having greatly influenced development of policies relating to revenue mobilization by Counties Governments. He collaborates with the private sector, governments and NGOs to address critical topics, including county growth strategies, borrowing and leasing by counties, MSME support and public finance management. murungindai@gmail.com

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