EAC economies exposed to Russia-Ukraine war spill– UN

Food prices have increased to a 14-year high with oil prices highest since 2008.

In Summary

•Economies are still struggling to shake of the impact of the Covid-19 pandemic. 

•Kenya GDP contracted by 0.3 per cent  in 2020, hit by the economic fallout of Covid-19, compared to five per cent in 2019.

Kenya's capital Nairobi/
Kenya's capital Nairobi/

The East African economies, struggling to recover from the  Covid-19 hit, face another crisis arising from the war in Ukraine, the UN has cautioned.

The United Nations-Economic Commission for Africa (ECA) estimates that the Covid pandemic led to the contraction of Africa’s real GDP by three percent (3%) in 2020 and Africa’s debt-to-GDP ratio increased by 10 to 15 percentage points by 2021.

This is from about 60 per cent in 2019 as governments borrowed to mitigate the socio-economic impact of the pandemic.

Over the pandemic period, Kenya borrowed about Sh1.06 trillion during to mitigate its effects and budgetary support, pushing the country's public debt to Sh7.34 trillion. It has since grown to Sh8.2 trillion, Central Bank of Kenya data shows.

“Africa’s recovery has been hindered by higher inflation, tighter global financial conditions, rising interest rates and the Ukraine crisis further compound the situation,” said Mama Keita, Director ECA Sub-Regional Office for Eastern Africa, in a statement yesterday.

This was after the ECA-East African Business Council meeting on financing recovery from Covid-19 and status of the African Continental Free Trade Area (AfCFTA) negotiations and implications to the private sector in the EAC.

According to Keita, the Ukraine crisis has increased food prices to a 14-year high with oil prices highest since 2008.

Fertiliser prices increased by 21 per cent since the start of the crisis.

She called for public and private sector partnerships to increase intra-African agri-food, industry and services trade, to build resilience against external shocks such as the Ukraine crisis and bring back-on-track Africa's recovery from Covid-19.

The UN sentiments come even as the Central Bank of Kenya (CBK) foresees a stronger performance this year with a growth projection of 5.8 per cent in 2022 and 5.5 per cent on average in 2023–25.

Kenya GDP contracted by 0.3 per cent  in 2020, hit by the economic fallout of Covid-19, compared to five per cent in 2019.

Leading indicators point to a strong performance of the economy supported by robust activity in information and communication, wholesale and retail trade, transport and storage, and manufacturing sectors.

The CBK says inflation, a measure of the cost of living, is expected to remain anchored within the target range (2.5-7.5), supported by the government’s policy interventions.

The economy is expected to remain resilient, supported by recovery in agriculture and continued strong performance of the services sector despite the downside risks to global growth in 2022.

Three surveys conducted ahead of the MPC meeting — Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels — found continued optimism about business activity, employment, and economic growth prospects for 2022.

The optimism is attributed to reduced Covid-19 infection rates, anticipated favourable weather conditions, and increased infrastructure spending.

Nevertheless, respondents were concerned about the impact of the Russia-Ukraine conflict on commodity prices and supply chains, in addition to the increased political activity.

The Survey of Hotels found continued recovery in the sector, with a majority expecting a return to pre-pandemic level of operations by the end of 2022.

Meanwhile, Keita has termed the African Continental Free Trade Area (AfCFTA) ‘a powerful tool” that can be used to accelerate regional and economic integration and prepare for uncertain times.

It is expected to increase intra -Africa trade and that with the rest of the world, strengthening economies.

Currently, Africa contributes only three per cent of world trade and intra-African trade is less than 20 per cent.

Intra-African exports are 18 per cent of total export, significantly lower than Europe (68%), Asia (58%), and North America (30%).

The AfCFTA is set to increase Africa’s real income by seven per cent to $450 billion and intra-African trade by 81 per cent by 2035, according to a World Bank study.

EABC CEO John-Bosco Kalisa has since called on governments to facilitate trade under AfCFTA as 57 per cent of Non-Tariff Barriers are due to customs procedures.

“There is need for full involvement of the private sector in the AfCFTA national implementation strategies, elimination of Non-Tariff Barriers and tackling information asymmetry to boost trade in Africa,” Kalisa said.

EAC Partner States have adopted some of the tariff offers under the trade platform.

According to MarieAngelique Umulisa, Principal Trade Officer, EAC Secretariat, there are outstanding negotiations on rules of origin on important products namely cotton, textile, apparel and motor vehicle.

“Making the most out of AfCFTA to get the most out of the AfCFTA, the role of manufacturing, services and value addition were rightly flagged up as priority areas to consider,” Umulisa said.

These elements of the Free Trade Area will be deal-breakers in improving East Africa’s terms of trade and trade potential in the continental market.

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