Future of EAC bloc bright, say experts

July 15, 2010

, NAIROBI, Kenya, Jul 15 – The future of the East African Community (EAC) regional bloc looks bright – buoyed by the ongoing integration process and economic recovery – a section of financial experts have said.

Besides the benefits to be accrued from the implementation of the East African Common Market Protocol, the 126 million-people region are currently enjoying better agricultural production and a stable macroeconomic environment characterised by low inflation and interest rates.

“After a sluggish economic growth over the last two years, regional economies are poised for recovery. Kenya, Uganda, Tanzania and Rwanda are all expected to grow in excess of five percent,” observed PineBridge Investments Senior Investment Manager Peter Wachira adding that the bloc’s export sector was likely to benefit from the recovery of the global economy.

The continued implementation of the fiscal stimulus package that could support high consumption demands coupled with the heavy investments in infrastructure would further stimulate economic growth, he said.

The analyst pointed out that although there were obvious challenges in the regional integration, the EAC Protocol is a ‘workable and beneficial concept’ that could spur economic growth for East Africa.

Despite the problems in the international market such as the sluggish global economy and the European debt crisis which is constraining donor flows into emerging markets, Mr Wachira said the East African region was unlikely to be affected.

This is because the region, particularly Uganda and Tanzania have reduced their expected donor budgetary support from 33 percent in the previous financial year to 25 and 28 percent in this fiscal year respectively. Kenya has in the past few years been able to finance over 80 percent of its budget thanks to improved tax administration and robust economic growth.

On the equity markets front, the East African market has been resilient with the Nairobi Stock Exchange and the Uganda All Share Index being among the best performing. The two have risen by 32.75 percent and 39.76 percent respectively since the beginning of the year.

However, market developments in Europe which have seen investors flee from Euro denominated portfolios to dollar denominated assets has impacted negatively on the regional currencies. The Kenyan shilling has for instance declined by 5.7 percent against US dollar while the Ugandan and Tanzanian currencies have weakened by 8.9 percent and 9.6 percent respectively.

While the currency trends are likely to be linked to the performance of the US dollar, Mr Wachira said their current foreign reserves are healthy although Kenya is more vulnerable to currency fluctuations as it only has a three months import cover.

The region’s growth momentum is also likely to be affected by the jitters that might be posed by political activities that are scheduled to take place over the next few months.

Kenya has an upcoming constitutional referendum in August, while Rwanda and Tanzania are expected to go to the polls in the fourth quarter of this year. Uganda will hold its election in the first quarter of next year with Kenya’s expected late in 2012.

Investments and performance of the equity markets in Kenya for example are hinged on whether the country will have a peaceful referendum or not.

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