East Africa, having rapidly risen as Africa’s bright star in recent years, is facing serious headwinds as it reels under the impact of Covid-19.
Already trade volumes in the East African Community (EAC) are estimated to be down by 25% since the start of 2020, while the World Bank has indicated that growth will contract, possibly sparking the first recession in the region in decades.
The bank estimates that economic growth in East Africa - as well as other sub-Saharan African countries - will decline from 2.4% in 2019 to -2.1 to -5.1% in 2020. While much of it depends on each country’s ability and level of success in mitigating the pandemic’s effects, there is no denying that the novel coronavirus is taking its toll.
According to the Trade Law Centre (tralac), the pandemic is costing the region between $37 billion and $79 billion in terms of output losses. The biggest impact in terms of loss to GDP has been a reduction of about 50% in household and business spending, the disruption to supply chain for key inputs in machinery and chemicals, and tourism.
“Tourism is a major source of income for the region and the loss felt in this sector will have knock-on effects,” said Duncan Bonnett of Africa House. “There has been a differential impact across the region depending on countries. Tanzania, for example, did not lockdown at all, while Kenya and Uganda implemented quite stringent lockdowns. This has resulted in some discord between the various countries.”
He said one of the early impacts of Covid-19 had been the sharp rise in the cost of imported materials. “In Nairobi the cost of basic building materials and steel rose by as much as 10%.”
Bonnett said the horticulture and broader agriculture industries were also hit hard as key markets in Europe were cut back on luxury purchases. “In particular, the cut flower industries have been under pressure as well as some of the speciality vegetables that they export from the region. The price for coffee has also dropped.”
On the positive side, however, the region is not as dependent on extractives such as oil, coal and iron ore as Southern and West Africa.
Bonnett said while Covid-19 was wreaking havoc in East Africa – like most of the world at present – he believed it was a region that would recover more quickly than many others in Africa.
The economic progress made over the past two decades would ultimately be its saving grace, he said.
“There is a growing economic base and a growing urban population. Also, it is not dependent on mineral commodities – and the huge gas finds off the coast of northern Mozambique and Tanzania will bring benefit across the region. East Africa, in my opinion, still holds real opportunity. It really is a no brainer as to where in Africa companies should be looking for opportunities.”