Mid-term growth for East Africa projected highest in Africa for 2023-24

East Africa will register the highest regional economic performance on the continent in 2023 and 2024, with growth figures at over 5 percent, according to the newly published African Development Bank 2023 East Africa Economic Outlook.

The report, launched on Thursday 27 July, projects mid-term economic growth in the region to accelerate to 5.1 percent in 2023 and 5.8 percent in 2024, outpacing all the other African regions. This will be largely driven by growth in Rwanda, Uganda, Ethiopia, Kenya, Djibouti, and Tanzania.

According to the report, East Africa’s real GDP has been propelled by its services sector, contributing almost half of the economic growth in 2022. The sector contributed 2.0 percentage points to GDP growth, lower than 2.5 percentage points on average for the period 2015-21. The region’s natural and cultural attractions draw tourists from around the world, creating a demand for services like accommodation, food, and entertainment.

The East Africa region, however, faces several external and domestic downside risks that could affect the positive economic outlook. These include a global economic slowdown, rising commodity prices, Russia’s ongoing war in Ukraine, international trade policies, tightening of global financial conditions, exchange rate depreciation, and a resurgence of Covid-19.

“The domestic risks include gaps in infrastructure, domestic conflicts and political instability, macroeconomic imbalances, and adverse impacts of climate change,” the report states.

The annual flagship Africa Economic Report of the African Development Bank offers an assessment of the region’s recent macroeconomic performance. The report also examines medium-term projections and the risks to the region’s growth outlook, providing in-depth analysis of topical issues that the region is grappling with.

The theme of the 2023 report is “Mobilizing Private Sector Financing for Climate Change and Green Growth”. It delves into the imperatives for a green transition for Africa and the role of private sector financing. It further presents a case for natural capital as a key source of financing for climate-compatible growth in East Africa.

Despite contributing less than 4 percent to total global carbon emissions, African countries face significant climate financing challenges to respond to mitigation and adaptation measures required to tackle climate change effects.

The report outlines four common challenges faced by the region’s economies, which justify a strong, inclusive green growth agenda. They include reliance on agriculture for livelihoods, natural resource dependence, energy, and water scarcity. It urges East African countries to adapt green growth pathways by tapping into key sectors like renewable energy; sustainable agriculture and infrastructure; and forestry.

“In 2020, East Africa could only cover 11 percent of its estimated annual climate financing needs of $67.2 billion, highlighting the significant financing gap challenges for climate change and green growth in the region,” African Development Bank director general for East Africa, Nnenna Nwabufo said during the virtual launch event, adding: “It is obvious that at least 50 percent of climate financing will have to be sourced from the private sector.”

Nwabufo said boosting private sector financing for climate change and green growth in East Africa will also require a mix of well-sequenced policy interventions. “In the short to medium term, there is a need to amplify private sector participation in climate change initiatives through dialogue, to boost resource mobilisation, among other interventions,” she said.

The Bank’s chief economist and vice president Prof Kevin Chika Urama, called for appropriate regulations, incentives and support for project preparation, as well as the development of strong capital markets that could ease entry and exits by domestic and global investors.

“It will require greater use of blended finance, deployment of de-risking facilities at scale, and the development of platforms that can allow the private sector to invest in a portfolio of green projects as opposed to individual projects to diversify and manage risks,” Urama said.

Kenyan Cabinet Secretary for National Treasury and Economic Planning, Prof Njuguna Ndung’u, keynote speaker at the report launch, called on regional governments to work with development partners and meet their end of the bargain to accelerate the pace of transformation in a region that is riddled with debt. “The growing debt burden is holding back the growth potential of our countries, thereby elevating poverty rates and inequality,” he said.

East Africa Regional Office Lead Economist, Dr Marcellin Ndong Ntah, noted that the region will continue to post the highest inflation rates in Africa in the medium term, due to the debt situation, global shocks and internal conflicts, adding nonetheless, that the inflation pressure is slowly easing.

“Debt vulnerabilities will also remain elevated in East Africa, with exchange rate depreciation and high primary deficits exacerbating sustainability risks,” Ndong Ntah said, citing Burundi, Comoros, Djibouti, Ethiopia, Kenya, South Sudan, as countries with high debt risk.

Dr Edward Sennoga, a second lead economist with the East Africa regional office said the region is endowed with natural capital that is yet to be harnessed. “The region is well placed to advance its pursuit of climate and green growth ambitions, given its market size; youthful population that could double by 2050; green technology potential; and significant natural resource endowments.”

“The region is well placed to advance its pursuit of climate and green growth ambitions. There is a lot the region can leverage on. The region has significant opportunities in green growth sectors notably agriculture, energy, ICT, transport, and the blue economy. These are investment opportunities that can contribute to addressing financing gap challenges for climate change and green growth,” Sennoga said.