Economic growth in East Africa remains strong despite drought

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In ICAEW’s (the Institute of Chartered Accountants in England and Wales) latest report, Economic Insight: Africa Q1 2017 , produced by partner and forecaster Oxford Economics, the accountancy and finance body points out that authorities from various East African nations have attempted to mitigate the effects of the drought by stimulating economic activity through other channels such as substantial fiscal stimulus and loosened monetary policy.

Tanzania is set to hit a real gross domestic product (GDP) growth of 6.9, followed by Uganda at 6.8, Ethiopia at 6.7, and Rwanda and Kenya at 6.6 and 6.4 respectively. This is despite the drought. Both Rwanda and Uganda have loosened monetary policy during the first quarter of the year, while Ethiopia counterweighted the drought effects through substantial fiscal stimulus  – the construction sector reportedly expanding by 25 per cent during the 2015/16 fiscal year.

Michael Armstrong, regional director of ICAEW Middle East, Africa and South Asia, said, “Overall, economic growth in East Africa remains strong despite the drought. Infrastructure development continues to stimulate industry across the region, while expanding services to the largely unserviced markets remains the key driver behind growth.”

The adverse effects of the drought have been most notable in Uganda, with agriculture decreasing during the first three quarters of 2016. Poor crop production has also had a marked impact on food price inflation across the region. While not particularly intense in historic terms, inflationary pressures in recent months can almost entirely be attributed to high food prices, with non-food price inflation remaining subdued. Most agriculture in East Africa is highly dependent on the weather and adverse rainfall is directly reflected in both agricultural production and food prices.

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