East Africa Economic Outlook 2019 - Macroeconomic developments and prospects Political economy of regional integration - African Development Bank
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East Africa Economic Outlook 2019 Macroeconomic developments and prospects Political economy of regional integration
East Africa Economic Outlook 2019
The opinions expressed and arguments employed herein do not necessarily reflect the official views of the African Development Bank, its Boards of Directors, or the countries they represent. This document, as well as any data and maps included, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries, and to the name of any territory, city, or area. Cover design by the African Development Bank based on images from Shutterstock.com © African Development Bank 2019 ISBN 978-9938-882-97-1 (print) ISBN 978-9938-882-97-1 (electronic) You may copy, download, or print this material for your own use, and you may include excerpts from this publication in your own documents, presentations, blogs, websites, and teaching materials, as long as the African Development Bank is suitably acknowledged as the source and copyright owner.
CONTENTS
Acknowledgmentsv
Executive summary 1
Part 1
Macroeconomic developments and prospects 5
Economic performance and outlook 5
Macroeconomic stability and outlook 8
Domestic resource mobilization 12
Poverty, inequality, unemployment, and structural change 13
Emerging policy issues 17
Part 2
Political economy of regional integration 19
Progress in regional integration 19
Political economy of regional integration 24
Infographic: Moving Across East Africa 28
Intervention strategies and policies to strengthen regional integration 33
Notes35
References36
Annexes39
Statistical annex 45
Boxes
1 The diversity of East Africa 6
2 Progress toward the African Continental Free Trade Area in East Africa 18
3 An empirical analysis of the East African Community’s readiness for monetary union 22
4 The Ethio-Eritrea Peace Agreement and its imperative for regional integration 26
5 Informal cross-border trade in Ethiopia and Uganda 27
Figures
1 GDP growth, by region, 2008–20 6
2 GDP growth in East Africa, by country, 2014–20 7
iii3 Overlapping membership in regional economic communities in East Africa 20
4 Revealed comparative advantage of selected African countries and African trading
partners in manufactured goods, 2010–13 32
Tables
1 Inflation in East Africa, by country, 2017–20 9
2 Fiscal balance, including grants, in East Africa, by country 10
3 External current account balance, including grants, in East Africa, by country 11
4 External debt stock and debt indicators in East Africa, by country, 2018 12
5 Domestic resource mobilization and financial sector development in East Africa, by
country, 2016 and 2017 13
6 Poverty and inequality in East Africa, by country, various years 14
7 Structural change, growth, and unemployment, various years 16
8 Macroeconomic convergence criteria in the Common Market for Eastern and Southern
Africa and the East African Community, by country 21
9 Intraregional trade in East Africa, 2012–17 23
10 African Regional Integration Index ranks among Common Market for Eastern and
Southern Africa members, by country, 2016 24
11 Actual intra-Africa trade as a share of potential intra-Africa trade in Common Market for
Eastern and Southern Africa members, by country, 1993–2010 25
12 Exports and imports in East Africa, by country, 2014–17 (exports) and 2017 (imports) 29
A1.1 Real GDP growth rate in East Africa, by country, 2008–20 39
A2.1 External debt accumulation in East Africa, by country, 2008–18 40
A3.1 Unemployment rates in East Africa, by country, 2010–18 40
Statistical tables
1 Basic indicators, 2018 45
2 Real GDP growth, 2010–20 46
3 Demand composition and growth rate, 2017–20 47
4 Public finances, 2017–20 48
5 Monetary indicators 49
6 Balance of payments indicators 50
7 Intraregional trade, 2017 51
8 Demographic indicators, 2018 52
9 Poverty and income distribution indicators 53
10 Access to services 54
11 Health indicators 55
12 Major diseases 56
13 Education indicators 57
14 Labor indicators, 2018 58
iv C ontentsACKNOWLEDGMENTS
The East Africa Economic Outlook 2019 was Patrick Kanyimbo, Principal Regional Inte-
prepared in the Vice Presidency for Eco- gration Officer for East Africa. Alemayehu
nomic Governance and Knowledge Man- Geda (University of Ethiopia) contributed
agement, under the supervision and general a background note to the report. External
direction of Célestin Monga, Vice President consultant Esther Katende-Magezi provided
and Chief Economist, with support from Eric the background note for the infographic on
Kehinde Ogunleye, Amah Marie-Aude Ezanin people and goods moving across East Africa.
Koffi, Tricia Baidoo, and Vivianus Ngong. Augustin Fosu (University of Ghana) and
The preparation of the outlook was led Peter Montiel (Williams College) served as
and coordinated by Ferdinand Bakoup, peer reviewers.
Acting Director, Country Economics Depart- The cover of the report is based on a gen-
ment, with a core team consisting of Abra- eral design by Laetitia Yattien-Amiguet and
ham Mwenda and Marcellin Ndong-Ntah, Justin Kabasele of the Bank’s External Rela-
Lead Economists for East Africa. tions and Communications. Editing, transla-
The data appearing in the report were tion, and layout support was provided by a
compiled by the Statistics Department, led team from Communications Development
by Charles Lufumpa, Director, and Louis Incorporated, led by Bruce Ross-Larson and
Kouakou, Manager, Economic and Social including Joe Brinley, Joe Caponio, Meta
Statistics Division. Their team included de Coquereaumont, Mike Crumplar, Peter
Anouar Chaouch, Mbiya H. Kadisha, Souma- Redvers-Lee, Christopher Trott, and Elaine
ila Karambiri, Stephane Regis Hauhouot, Sla- Wilson, with design support from Debra
heddine Saidi, Kokil Beejaye, Adidi Ivie, and Naylor and translation support from Jean-
Guy Desire Lakpa. Paul Dailly and a team at JPD Systems.
Contributions were received from Tilahun
Temesgen, Chief Regional Economist, and
vEXECUTIVE SUMMARY
T
his report analyzes economic growth, its drivers, and its implications for social development
(including) poverty, employment, and inequality as well as progress in regional integration
in East Africa.
In 2018, real GDP in East Africa grew by an 2018, and is projected to drop to 3.7 percent
estimated 5.7 percent, slightly less than the in 2019 and 3.5 percent in 2020. But cur-
5.9 percent in 2017 and the highest among rent account deficits remain high, and two
African regions. Economic growth is pro- patterns are emerging. First, since almost all
jected to remain strong, at 5.9 percent in 2019 countries depend on primary commodities
and 6.1 percent in 2020. The countries with for exports, falling global commodity prices
the highest economic growth are Ethiopia, have negatively affected their terms of trade.
Rwanda, Tanzania, Kenya, and Djibouti. In Second, the region’s high growth has been
both Ethiopia and Rwanda, real GDP growth achieved through high investment, which is
has been driven by industry and services. The above domestic savings. The internal invest-
service sector has also been the main driver ment–savings gap is strongly associated
of growth in Tanzania and Kenya, followed by with the persistent current account deficit (or
the agricultural sector, the main growth driver external gap).
from the supply side. On the demand side, As in 2017, East Africa’s strong growth has
consumption has been the main driver of eco- not been matched by commensurate and
nomic growth across East Africa. substantial reduction in poverty and inequal-
The region continues to face various ity. So in 2018, the region is still characterized
downside risks that could undermine eco- by high poverty, inequality, and unemploy-
nomic growth and development prospects. ment. Poverty pervades all countries in the
Major risks are agriculture’s vulnerability to region and is extremely high in Burundi and
the vagaries of nature, heavy reliance on pri- Rwanda and very low in Seychelles, Sudan,
mary commodity exports, and—in oil-import- and Comoros.
ing countries—rising oil prices. Another key Structural transformation remained mark-
risk is persistent current account deficits and edly absent in the region. The service sector
related increases in external indebtedness. dominates the composition of GDP in the
Finally, state fragility—with its adverse impli- region, averaging 59.0 percent, followed by
cations for security and economic progress the agricultural sector, averaging 25.7 per-
—is a risk for Burundi, Somalia, South Sudan, cent. Industry, which includes construction,
and, to some degree, Ethiopia. is very small, averaging 15 percent. Similarly,
Notwithstanding the variation across the average share of manufactured exports
countries, the region’s fiscal deficit remained —a bout 14.6 percent—a lso indicates the
low, at an estimated 4.1 percent of GDP in region’s lack of structural transformation.
1Countries in East Africa are members of three on the African Regional Integration Index, while
important regional economic communities (RECs): Eritrea, Ethiopia, Sudan, and Djibouti had the
the Common Market for Eastern and Southern lowest.
Africa (COMESA), the Intergovernmental Author- There are numerous drivers of —and hence
ity on Development (IGAD), and the East African opportunities for —regional integration in East
Community (EAC). Progress in regional integra- Africa, including considerable unexploited poten-
tion in East Africa varies widely across these three tial in trade, underexploited cross-border transport
RECs. The EAC is approaching the highest stage, corridors between landlocked and coastal member
having ratified the protocol for a monetary union, countries, endorsement by 44 African countries of
but IGAD is farther behind. COMESA is also work- the agreement to establish the CFTA, the necessity
ing toward a monetary union by 2025, but prog- of regional peace and security that emanates from
ress in the prerequisite macroeconomic conver- the large number of fragile states in the region, the
gence criteria is lagging. recent discovery of natural resources, and substan-
In East Africa, the Continental Free Trade Area tial informal cross-border trade.
(CFTA), launched in Kigali in March 2018, is the
latest regional integration initiative. The tripartite Considerable unexploited potential in trade.
East Africa is
free trade area involving COMESA, EAC, and the Except for Djibouti, which trades heavily with Ethi-
showing signs Southern African Development Community was an opia, intraregional trade is far below its potential
of only partial important impetus for the CFTA, especially in East —less than 12 percent for all countries except for
and Southern Africa. These initiatives are believed Comoros, half the value for Central and West Afri-
convergence among
to be advancing regional integration in East Africa. can countries.
key macroeconomic Notwithstanding the progress in regional inte-
variables used to gration, intraregional trade in East Africa trade Five landlocked countries. The physical location
assess readiness for is low, accounting for 8.3 percent of total trade of the landlocked countries and the existence of
in 2017, less than the continental average of the other countries in the region with coastal land
the EAC monetary 14.5 percent and roughly unchanged over the mass offer opportunities to enhance regional inte-
union. EAC countries past five years. The figure is nearly halved (to gration. Similarly, for small island states Comoros
need to strengthen 6.9 percent) if Djibouti, with its heavy trade with and Seychelles, geographic isolation, poor links to
Ethiopia, and Uganda, with its heavy trade with the mainland, vulnerability to climate change, and
their efforts and Sudan and South Sudan, are excluded. Intra-EAC small domestic markets drive regional integration.
further cooperate if and intra-IGAD trade fares better. Intra-EAC trade
they wish to achieve is the highest among all RECs in Africa, above Multiple fragile states, particularly in IGAD. Both
20 percent of exports and significantly higher than human-made factors such as conflict and natural
their objective
the continental average. factors such as climate change could be causes
of establishing a East Africa remains susceptible to asymmetric of fragility and its consequences, including migra-
monetary union shocks and is showing signs of only partial con- tion and lack of peace and security. On the posi-
vergence among key macroeconomic variables tive side, the recent peace accord between Eritrea
used to assess readiness for the EAC monetary and Ethiopia has already increased cross-border
union. This suggests that EAC countries are not trade and Ethiopia’s use of Eritrean ports, both of
ready for monetary union and need to further which could advance regional integration.
align and coordinate their monetary policies. It
may be better to fully implement the common The recent discovery of natural resources and
market and customs union protocol, further har- the need to ensure their optimal exploitation.
monize policies, and increase intraregional trade Natural gas and oil discoveries in Ethiopia, Kenya,
before adopting a common currency. Adopting a Tanzania, and Uganda, existing oil exploitation in
common currency before reaching a greater level South Sudan, Ethiopia’s large hydroelectric power
of convergence may be damaging.1 potential and its work toward exporting power to
At the country level, Kenya, Uganda, and Sey- Djibouti and Kenya—and pipeline development
chelles had the highest performance in the region for gas and fuel import—and export in Djibouti,
2 E x ecutive summaryEthiopia, and South Sudan are important drivers of Second, policymakers need to focus on imple-
and opportunities for further regional integration. mentation of regional integration initiatives, which
have mostly been incommensurate with signed
Informal cross-border trade. Estimated to be as commitments.
high as 50 percent of formal trade in Africa, informal Third is to approach regional integration from
cross-border trade is a diverse source of livelihood multiple dimensions to bring about synergy in
for millions of people. High tariff and nontariff bar- trade, infrastructure, productive engagement,
riers, excessive regulation, ease of infrastructure in and policy and regulatory coordination as well as
border towns, and distortion in the official market sociocultural issues.
or sectors are usually mentioned as major factors Fourth, since increased intra-Africa trade is a
behind informal cross-border trade. So address- major policy instrument for advancing regional
ing trade costs, harassment and corruption, infra- integration, it is imperative to capitalize on the
structure deficiency, excessive regulation, and high political goodwill associated with the CFTA.
excessive requirements at border customs posts The agreement establishing the CFTA also came
and formalizing the informal sector are important with an implementation action plan that tackles
policy directions to support informal cross-border constraints on intra-Africa trade by holistically
The major
trade and enhance regional integration. addressing trade policy, trade facilitation, produc-
Despite these drivers and opportunities, prog- tive capacity creation, trade-related infrastructure challenges of
ress in regional integration has been limited. What provision, trade finance, trade information, and regional integration
are the major challenges of regional integration in factor market integration
in East Africa
East Africa? Lack of complementarity in trading, Fifth, the lesson from East Asia on the policy
low competitive position of countries to supply direction of structural transformation and process are lack of
goods in the region (which is related to lack of integration is instructive: deliberate and conscious complementarity
structural transformation, low productivity, and state action—in the form of unilateral tariff reduc-
in trading, low
a wide infrastructure gap), institutional capac- tions, the establishment of export processing
ity weakness to advance regional integration, zones and duty drawback arrangements, and entry competitive position
and failure to address political issues related to into sectoral trade agreements (especially in infor- of countries to
regional integration. mation and communication technology and in the supply goods in the
Several policy directions aimed at boosting context of value chain creation)—are the foundation
regional integration in East Africa emerge from for success. East African policymakers may draw
region, institutional
this analysis. First is structural transformation— an important lesson from this experience and tune capacity weakness
with its implications for employment and poverty their own country policies along this line. These pol- to advance regional
reduction. The terms of trade deterioration and icies also require building the capacity of regional
integration, and
vulnerability of country growth to such external and national institutions tasked with these issues.
sector shocks is due essentially to trade in primary East Africa has considerable potential to benefit failure to address
commodities, which has hindered structural trans- from regional integration and to advance intra-Af- political issues
formation. Related to the lack of structural trans- rica trade to promote sustainable economic
related to regional
formation is the external sector’s dependence growth and development in member countries.
on global commodity prices. When global com- But realizing this potential—and hence the effort integration
modity prices fall, growth declines and current to advance regional integration—is challenged
account deficits and external debt increase. The by the lack of complementarities of exports and
changing composition of East Africa’s debt toward imports as well as the relative competitive position
China (and its export-import bank) and the growth of potential export suppliers. The result of weak
of borrowing from Eurobonds are also making infrastructure, productivity, and trade facilitation,
East Africa’s debt not only very burdensome, but this calls for addressing export supply constraints,
also expensive. Sustained and inclusive growth export competitiveness, and export diversifica-
accompanied by substantial job creation, poverty tion, which in turn calls for policies that go beyond
reduction, and healthy external balance is impos- liberalization to actual realization of the potential
sible without addressing this structural problem. for trade expansion and process integration.
E x ecutive summary 31
PART
MACROECONOMIC
DEVELOPMENTS
AND PROSPECTS
ECONOMIC PERFORMANCE AND OUTLOOK
East Africa comprises 13 countries that are diverse in many aspects (box 1). In 2018, real GDP
in the region grew by an estimated 5.7 percent, slightly less than the 5.9 percent in 2017 and
the highest among African regions (figure 1). Economic growth is projected to remain strong, at
5.9 percent in 2019 and 6.1 percent in 2020. The regional average masks substantial variation
across countries. Estimated GDP growth in 2018 ranged from –3.8 percent (contraction) in
South Sudan to 7.2 percent in Rwanda and 7.7 percent in Ethiopia.
GDP growth and its drivers 3.6 percent in Seychelles to 5.3 percent in
The countries with the highest economic Uganda. Growth is expected to improve mar-
growth are Ethiopia, Rwanda, Tanza- ginally in 2019 in almost all these countries,
nia, Kenya, and Djibouti (figure 2; see also except Seychelles, where the growth rate
table A1.1 in annex 1). In both Ethiopia and is projected to decline by 0.3 percentage
Rwanda, real GDP growth has been driven point, and Sudan, where the growth rate is
by industry and services. The service sector projected to decline by 0.5 percentage point.
has also been the main driver of growth in The main drivers of growth also vary across
Tanzania and Kenya, followed by the agricul- countries. Despite estimated growth in 2018
tural sector, the main growth driver from the being less than the 5.3 percent in 2017, the
supply side. main drivers of growth in Seychelles remain
In countries with low growth, such as the traditional tourism and fisheries sectors.
South Sudan (–3.8 percent), Burundi (1.4 per- In Sudan, the main driver is the mining sector,
cent), Comoros (2.8 percent), and Somalia despite its small contribution to GDP; the
(2.9 percent), the main factor is lack of peace sector is projected to grow by 7 percent in
and stability, which has disrupted economic 2019–20. In Eritrea, investment in the mining
activity. In South Sudan, internal conflict dis- sector and the government’s agricultural
rupted oil production, and agricultural pro- development programs are the primary con-
duction declined because of poor weather tributors to growth.
conditions and violent conflict in many areas.
In Burundi, political instability disrupted eco- Decomposition of GDP growth by
nomic activity. And in Somalia, the continuing sector
insecurity problem, poor infrastructure, cli- In the majority of East African countries, real
mate change, and low institutional capacity GDP growth from the supply side is driven
have limited economic growth. primarily by growth in services, followed by
In the rest of East Africa, economic industry, where the contribution of the con-
growth rates have been high, ranging from struction sector is considerable.
5FIGURE 1 GDP growth, by region, 2008–20 BOX 1 The diversity of East Africa
Percent East Africa comprises a diverse set of coun-
8
tries. Populations range from less than 1 mil-
West Africa lion in Djibouti to more than 100 million in Ethi-
East Africa opia, the continent’s second most populous
6
country. The structure of the economy varies
from South Sudan, where oil accounts for
North Africa
99 percent of exports, and Somalia, where
4 Africa manufactured exports account for about
1 percent of total merchandise exports, to
Kenya, where manufactured goods account
2 for 37 percent of total merchandise exports
Southern Africa and the financial sector functions well.
Central Africa
In 2018, eight East African countries
0
had an economic vulnerability index1 higher
2008–10 2011–13 2014–16 2017 2018 2019 2020 than the threshold for classification as a
(estimated) (projected) (projected)
least developed country. Five countries—
Source: African Development Bank statistics. Burundi, Comoros, Eritrea, Seychelles, and
South Sudan—had a value above the aver-
age for least developed countries. The most
Among the fastest growing countries in the vulnerable countries have different eco-
region—Ethiopia, Rwanda, and Tanzania, which nomic and social characteristics—some are
all saw growth above 6 percent in 2018—growth small island states, others landlocked—but
on the supply side is driven largely by growth generally depend on a few export products
in industry and services. In Ethiopia, industry and suffer from instability in export earn-
(especially construction) grew by 18.7 percent in ings. And most are extremely vulnerable to
2016/17, and services grew by 10.3 percent. In natural disasters, with large fluctuations in
Rwanda, industry grew by 8.3 percent, and ser- agricultural production and a high reliance
vices grew by 7.6 percent. Services is also the on the agricultural sector.
main driver of growth in Tanzania. The service
sector’s contribution to growth was highest in Note
Kenya, at 71 percent, while agriculture accounted 1. The economic vulnerability index is based on
for 15 percent and industry for 14 percent. eight indicators that cover exposure to external
Among slower growing countries—D jibouti, shocks, distance to the world market, sectoral
Eritrea, Seychelles, Sudan, and Uganda, which share of the primary sector, instability of export
all saw growth of 3–5 percent in 2018—growth earnings, and geographic distribution of the pop-
on the supply side is also driven primarily by ulation, among other things.
growth in services. In Djibouti, services (espe- Source: UNECA 2019.
cially the port facilities, which serve Ethiopia’s
increasing cargo) accounted for 77 percent
of growth in 2018, followed by industry, which In countries with the least growth — S outh
accounted for 19 percent. In Seychelles, services Sudan and Burundi—state fragility in general and
and manufacturing (particularly tourism, trade, conflict and insecurity in particular were the main
and food manufacturing) were also the main driv- causes of poor performance. The conflict in South
ers of growth. And in Sudan, mining and agricul- Sudan disrupted oil production, which accounts
ture are the leading contributors to growth from for more than 70 percent of GDP, and agricultural
the supply side. activities, which account for 10 percent to GDP.
6 M acroeconomic developments and prospectsFIGURE 2 GDP growth in East Africa, by country, 2014–20
Percent 2014–16 2017 2018 (estimated) 2019 (projected) 2020 (projected)
15
10
5
0
–5
–10
The prospects of
–15
Burundi Comoros Djibouti Eritrea Ethiopia Kenya Rwanda Seychelles Somalia South Sudan Tanzania Uganda East sustained economic
Sudan Africa
growth in the region
Source: African Development Bank statistics.
remain positive, with
growth projected
Major sources and drivers of growth Opportunities and risks to economic at 5.9 percent
on the demand side prospects in 2019 and
On the demand side, consumption is the main The prospects of sustained economic growth in
driver of economic growth in East Africa, partic- the region remain positive, with growth projected
6.1 percent in 2020
ularly in the fastest growing economies (Ethiopia, at 5.9 percent in 2019 and 6.1 percent in 2020.
Kenya, Rwanda, and Tanzania). In Ethiopia, pri- In Ethiopia, infrastructure investment, continued
vate consumption, was the main driver of growth expansion in industry and services, sustained
from the demand side, followed by investment. agricultural recovery, planned partial privatization,
In Kenya, private final consumption expenditure the new prime minister’s democratization reform
accounted for about 84 percent of growth during (which is bringing about political stability), the
2011–18. In Tanzania, private consumption’s con- peace agreement with Eritrea (see box 4 later in
tribution to growth from the demand side was the chapter), and the crackdown on corruption will
about 64 percent in 2018, followed by private continue to drive high economic growth in 2019
investment (17 percent), and government con- and 2020. In addition, the ongoing program to
sumption (12 percent). develop industrial parks, continuing foreign direct
Even in countries with the least growth (South investment inflows, and the government’s pro-
Sudan, Burundi, and Comoros), private con- ductivity-enhancing investments in agriculture are
sumption is the driving force behind GDP growth opportunities for continued economic growth.
(as well as its contraction) from the demand side. In Kenya, growth is projected to be 6.0 percent
In South Sudan, real GDP contraction in 2017 in 2019 and 6.1 percent in 2020, driven by growth
was partly the result of a decline in household in agriculture due to good weather conditions,
consumption. Higher public spending due to an completion of ongoing infrastructure projects, and
increase in salaries in 2017 largely contributed continued macroeconomic stability. In Sudan,
to 56 percent growth in public consumption. benefits from the ongoing implementation of mac-
Increased public expenditure is expected to con- roeconomic stabilization and structural reforms,
tinue driving economic growth on the demand strong rebounds of growth in manufacturing and
side in 2018. handcrafts, and the permanent revocation of US
M acroeconomic developments and prospects 7sanctions (which is expected to normalize Sudan’s issue is not forthcoming. Debt stress (especially
relations with creditors and signals positive eco- China debt exposures), with its adverse implica-
nomic outlook for the country) are opportunities tions for the current account balance, could also
for increased economic growth. threaten Djibouti, Eritrea, Somalia, South Sudan,
In Rwanda, the “Made in Rwanda” campaign Sudan, and Tanzania. Rwanda’s present value of
and policy is expected to narrow the current debt–to-export ratio, which stands at 7.2 percent,
account deficit, consolidate private sector domes- is expected to increase sharply to 17.3 percent
tic activities, create jobs, and boost economic in 2023, when the country’s Eurobonds are due,
growth. In Seychelles, vibrant tourism arrival pro- indicating a downside risk on the horizon. Sey-
jections and expanding private sector credit are chelles also faces balance of payment–related
expected to sustain economic growth. And in risks that need careful management.
Eritrea, the normalization of relations with Ethiopia Finally, “state fragility” with its adverse impli-
and the related peace and economic cooperation cations for security and economic progress, is
initiative with Djibouti and Somalia bring positive another risk factor for countries such as Burundi,
prospects for growth. South Sudan, Somalia, and, to some degree, Ethi-
East Africa continues to face various downside opia. In Somalia and South Sudan, for instance,
A key risk factor
risks that could undermine economic growth and the security situation, institutional capacity defi-
confronting East development prospects. In Ethiopia, the vulnera- ciency and governance are expected to pose a
Africa is persistent bility of rainfed agriculture to vagaries of nature, major downside risk in the coming two years.
heavy reliance on agricultural commodity exports,
current account
and weak export performance and the resulting
deficits and related foreign exchange crunch are key downside risks. MACROECONOMIC STABILITY
increases in external Political instability also remains a threat in the next AND OUTLOOK
indebtedness two years before the first election after the new
prime minister’s political reforms. A stable macroeconomic environment is one of
In Rwanda, South Sudan, Sudan, Tanzania, the major enabling environments for growth and
and Uganda, which depend heavily on rainfed structural transformation.2 Because growth and
agriculture and primary commodities for exports, structural transformation are needed to sub-
downside risks relate to the climate and global stantially reduce poverty,3 East African countries
commodity prices. In oil-importing countries, pay attention to macroeconomic stability. And
downside risks emanate from rising oil prices. because macroeconomic instability can lead
Kenya’s downside risks also include slow credit to political and social instability,4 it captures the
uptake by the private sector, lack of fiscal and attention of policymakers and politicians. Inflation,
monetary policy coordination, and failure to raise an important indicator of macroeconomic stability,
external resources to finance fiscal deficit. In remained in the double digits in 2018, increasing
Sudan, the combined effects of uncertainty due to by 0.5 percentage point from 14.0 percent in 2017.
high inflation and the import rationalization policy But if South Sudan’s exceptionally high 104.1 per-
are downside risks in the next two years. cent is excluded, the region’s average inflation rate
Another key risk factor confronting East Africa drops to an estimated 12.8 percent in 2018, and
is persistent current account deficits and related is projected to decrease slightly to 10.9 percent in
increases in external indebtedness. In Ethiopia, 2019 and 10.2 percent in 2020 (table 1).
total debt is 60 percent of GDP (divided equally
between domestic and external). Much of the Inflation and macroeconomic stability
external debt is owed to China and has expen- A combination of factors are behind South Sudan’s
sive terms. A rising fiscal deficit and indebtedness high inflation rate: rapid currency depreciation,
are also risk factors for Kenya and led the gov- high dependence on imported consumer and
ernment to pursue stringent fiscal consolidation capital goods, increased monetization of the high
measures in 2018. This could be a downside risk fiscal deficit, GDP contraction due to disruption in
for the country if the political will to address the oil production, and a general lack of peace and
8 M acroeconomic developments and prospectsTABLE 1 Inflation in East Africa, by country, 2017–20 (%)
2018 2019 2020
2017 (estimated) (projected) (projected)
Burundi 16.1 12.7 22.1 23.1
Comoros 1.0 2.0 2.0 2.0
Djibouti 0.6 0.8 2.4 2.7
Eritrea 9.0 9.0 9.0 9.0
Ethiopia 7.2 13.0 9.3 8.5
Kenya 8.0 4.8 5.5 5.4
Rwanda 8.2 0.9 4.1 4.0
Seychelles 2.9 4.4 3.6 3.1
Somalia 2.9 5.1 4.7 4.6
South Sudan 187.9 104.1 108.2 91.4
Sudan 32.6 43.4 35.0 33.1
The region’s
Tanzania 5.3 4.8 5.2 5.1
Uganda 5.6 3.2 4.3 4.8 overall exchange
East Africa 14.0 14.5 12.5 11.4 rate stability and
Excluding South Sudan 11.3 12.8 10.9 10.2 low inflation are
Source: African Development Bank statistics. generally the result
of monetary and
fiscal policies
security. Inflation also remained high in Burundi and low inflation are generally the result of mone-
and Ethiopia and extremely high (43.4 percent in tary and fiscal policies that aim for price stability
that aim for price
2018) in Sudan. (including the exchange rate) and high growth. In stability and
Burundi’s expansionary monetary policy, which Kenya, the central bank continued to pursue that high growth
began with the 2015 sociopolitical crisis and aimed stance to ensure price and exchange rate stability
to facilitate the refinancing of commercial banks in and stimulate growth when needed. The central
order to support productive investments in 2016 bank loosened its monetary policy stance recently
and 2017, continues to place pressure on inflation. by reducing the interest rate to 9.5 percent in
Inflation was estimated at 12.7 percent at the end March 2018 and to 9 percent in July 2018 to stimu-
of 2018 and is projected to sharply increase by late the economy. It also introduced various mone-
22.1 percent in 2019 and 23.1 percent 2020. tary policy instruments to manage system liquidity,
In Ethiopia, inflation pressure came from sig- including foreign exchange sales to reduce pres-
nificant public spending, the 15 percent currency sure on the shilling and minimize exchange rate
devaluation, shortage of foreign currency, and passthrough to inflation. Thus, despite the interest
limited food supply. In Sudan, inflation increased rate decline in 2018, inflation remained low, and
by more than 10 percentage points from 2017 to the shilling’s exchange rate with major currencies
2018 and is projected to remain high, at 35.0 per- remained stable. A similar macroeconomic policy
cent in 2019 and 33.1 percent in 2020, driven stance has resulted in a stable exchange rate in
mainly by the weakening of the currency and mon- Ethiopia, Rwanda, Seychelles, and Tanzania.
etization of the deficit. The situation differs in postconflict (Eritrea)
Rising inflation is generally associated with cur- and conflict-ridden and unstable (Somalia, South
rency depreciation and exchange rate instability. Sudan, and Sudan) countries. In Eritrea, the offi-
So another important aspect of macroeconomic cial exchange rate of the nakfa remains fixed at
stability in East Africa relates to exchange rate con- 15.075 per US dollar, but on the parallel market,
ditions. The region’s overall exchange rate stability the exchange rate fluctuated between 20 and 24
M acroeconomic developments and prospects 9nakfa per US dollar.5 In Somalia, the shilling has the regional average. But in 9 of the region’s 13
stabilized at 23,606 per US dollar since the end countries, the fiscal deficit is below 5 percent of
of 2017, but counterfeit currency remains a major GDP, thanks to modest increases in public spend-
challenge for the central bank in the financial ing and better revenue generation. This general
sector in general and the exchange rate market picture is projected to prevail in 2019 and 2020.
in particular. In South Sudan, the 30 percent The high fiscal deficits in Burundi, Djibouti and
increase in the monetary base in 2018, driven by Eritrea in 2018 are the result of several factors.
monetization of the fiscal deficit, and the high infla- Weak economic activity, weak tax collection, and
tion that followed, led to a substantial depreciation a less attractive business environment.
of the South Sudanese pound, from 117 per US The region’s current account deficit was an
dollar in June 2017 to 140 in June 2018 in the offi- estimated 4.9 percent of GDP in 2018, largely
cial market and to 316 in May 2018 in the parallel unchanged from 2017, and is projected to improve
market. In Sudan, the Sudanese pound contin- slightly in 2019 and 2020 (table 3). The current
ued to weaken in 2018, and the country’s multiple account balance ranges from a deficit of 18.2 per-
exchange rates have yet to be unified. cent of GDP in Seychelles and 17.8 percent in
Djibouti to a deficit of 2.4 percent in Sudan and a
The region’s fiscal
Fiscal and current account balances surplus of 0.3 percent in Eritrea.
deficit remained The region’s fiscal deficit remained low, at an esti- The highest current account deficits—more
low, at an estimated mated 4.1 percent of GDP in 2018 (table 2), com- than twice the region’s average and thus in the
parable to the average for all of Africa. Although double digits—are in Burundi, Djibouti, Seychelles,
4.1 percent of GDP
the deficit was up in 2018 from 2017, it is pro- and South Sudan. The main factors behind the
in 2018, comparable jected to drop to 3.7 percent of GDP in 2019 and high deficit varies across these countries. Lower
to the average 3.5 percent in 2020. The aggregate figure hides exports growth than imports growth for food and
for all of Africa some high country values—Burundi, Djibouti, and capital goods in Djibouti. External shocks, includ-
Eritrea each have a fiscal deficit more than twice ing rising fuel prices, a decline in the number
TABLE 2 Fiscal balance, including grants, in East Africa, by country (% of GDP)
2018 2019 2020
2017 (estimated) (projected) (projected)
Burundi –6.5 –8.8 –8.8 –10.3
Comoros 0.4 –3.1 –5.4 –5.8
Djibouti –15.3 –15.5 –16.0 –15.4
Eritrea –13.8 –12.6 –12.4 –14.4
Ethiopia –3.3 –3.0 –2.9 –2.9
Kenya –8.9 –6.7 –5.7 –4.9
Rwanda –4.8 –4.3 –4.4 –3.6
Seychelles 0.0 –0.3 –0.4 –0.1
Somalia ... ... 0.1 0.1
South Sudan 5.8 –1.5 –1.4 –2.8
Sudan –1.9 –2.2 –1.6 –1.2
Tanzania –1.2 –3.9 –3.3 –3.5
Uganda –3.9 –4.7 –4.4 –4.3
East Africa –3.8 –4.1 –3.7 –3.5
... is not available.
Source: African Development Bank statistics.
10 M acroeconomic developments and prospectsTABLE 3 External current account balance, including grants, in East Africa, by country
(% of GDP)
2018 2019 2020
2017 (estimated) (projected) (projected)
Burundi –11.6 –10.4 –9.2 –11.2
Comoros –4.3 –6.0 –7.7 –7.4
Djibouti –17.5 –17.8 –16.3 –16.9
Eritrea 0.7 0.3 –1.1 –2.1
Ethiopia –8.1 –6.0 –5.9 –5.8
Kenya –6.7 –5.8 –5.2 –5.3
Rwanda –6.8 –8.4 –9.2 –8.3
Seychelles –20.5 –18.2 –17.6 –17.0
Somalia –6.7 –7.2 –6.5 –6.3
South Sudan 1.7 –12.7 –10.1 –0.3
Since almost all
Sudan –2.5 –2.4 –2.2 –1.9
Tanzania –3.3 –3.7 –3.4 –3.3 countries depend
Uganda –4.3 –4.9 –4.9 –5.4 on primary
East Africa –5.0 –4.9 –4.6 –4.6 commodities for
Source: African Development Bank statistics. exports, falling
global commodity
prices have
of tourists, and stagnation in its exports in Sey- through high investment, which is above domes-
chelles. The disruption in oil production and trade tic savings. The internal investment–savings gap,
negatively affected
(the result of political instability) in South Sudan. where investment is characterized by significant their terms of trade,
Five countries have a current account deficit of import content as well as a demand for imports resulting in the
5–10 percent: Comoros, Ethiopia, Kenya, Rwanda, that is generally inelastic, is strongly associated
and Somalia. In these countries, the deficit is gen- with the persistent current account deficit (or
persistent current
erally the result of excess imports over exports, external gap). The resulting current account deficit account deficits
which is strongly associated with the internal deficit is invariably financed by a combination of external
(investment being much larger than domestic sav- finance, which leads to indebtedness, and mone-
ings), particularly in Ethiopia and Somalia. In Ethi- tization, which leads to inflationary pressure. The
opia, this is aggravated by a decline in commodity rising external debt in the region (see table A2.1
prices and shortfalls in the services account. The in annex 2) is in turn leading to further increases
pattern is similar in Kenya and Somalia. in the current account deficit through debt ser-
Two patterns have emerged in the region’s vicing costs. In 2018, debt service in Ethiopia
continued current account deficits. First, since was $1.2 billion, or nearly a third of total exports
almost all countries depend on primary commod- ($3 billion), aggravating the current account deficit
ities for exports, falling global commodity prices and forcing the country to reschedule its debt.
have negatively affected their terms of trade, In absolute terms, debt stock is largest in
resulting in the persistent current account deficits. Sudan (55.4 billion), Kenya (42.7 billion), and
The terms of trade for Africa as a whole deterio- Ethiopia ($25.6 billion; table 4). Debt stock as a
rated from 193 in 2012 to 157.1 in 2016 and 168.7 share of GDP is above 30 percent in all East Afri-
in 2017, primarily because of falling primary com- can countries except in Burundi, Comoros, and
modity prices. Eritrea and is highest in Sudan (166.6 percent).
Second, the drive for rapid economic growth The region’s debt comprises bilateral, multilateral,
and the resulting high growth have been achieved and private flows. On average, 65.6 percent of
M acroeconomic developments and prospects 11TABLE 4 External debt stock and debt indicators in East Africa, by country, 2018
Debt-to-GDP Debt-to-exports Debt service–
Total debt stock ratio ratio to-exports ratio
($ billions) (%) (%) (%)
Burundi 0.5 14.9 294.7 21.1
Comoros 0.2 26.5 146.4 8.8
Djibouti 2.2 102.9 374.8 19.2
Eritrea 1.3 20.1 201.8 6.8
Ethiopia 25.6 30.5 385.4 29.7
Kenya 42.7 47.6 352.7 70.7
Rwanda 4.0 41.4 176.1 5.4
Seychelles 1.6 99.6 93.5 4.5
Sudan 55.4 166.6 1,133.9 4.4
Tanzania 19.2 34.6 187.2 12.8
Domestic resource Uganda 12.5 45.0 239.9 17.1
mobilization is a East Africa 165.2 52.5 370.3 27.4
major challenge Note: Data for Somalia and South Sudan are not available.
Source: African Development Bank statistics and International Monetary Fund World Economic Outlook
in East Africa
database.
external debt is obtained on concessional terms access to African countries. But its credit terms
and in foreign currency, with 58.6 percent in US are expensive, especially compared with those of
dollars in 2016. The risk of debt stress is low in multilateral loans.9 This is an emerging policy con-
Kenya, Rwanda, Tanzania, and Uganda and high cern for African countries in general and to coun-
in the region’s remaining countries.6 Based on tries in East Africa in particular.
the World Bank’s Country Policy and Institutional
Assessments, the debt policy indicator index is
1.5–2.5 on a scale of 1 (worst performance) to DOMESTIC RESOURCE
6 (best performance) for Burundi, Comoros, Dji- MOBILIZATION
bouti, and Sudan and 4.5 for Kenya, Tanzania,
and Uganda.7 Domestic resource mobilization is a major chal-
The debt-to-exports ratio is above 100 percent lenge in East Africa.10 Countries with tax revenues
for all East African countries except Seychelles. below 15 percent of GDP have difficulty funding
And in Burundi, Ethiopia, and Kenya, debt service basic state functions. From 1998 to 2008, tax-to-
is putting tremendous pressure on limited foreign GDP ratios in the EAC ranged from 12 percent to
exchange earnings (see table 4). Many of these 22 percent, compared with 36 percent in Organ-
countries have already benefited from the Heav- isation for Economic Co-operation and Develop-
ily Indebted Poor Country Debt Relief Initiative ment countries and 25.4 percent in South Africa
and the Multilateral Debt Relief Initiatives. Since (table 5). Tax revenue in fragile states is generally
2010, African indebtedness has doubled, and below 15 percent.11 East Africa has multiple frag-
in some cases tripled.8 And debt is increasingly ile states, so domestic resource mobilization is
dominated by bilateral flows coming from Brazil, far below what is needed to spur investment and
India, Russia, South Africa, and particularly China. growth. The low domestic saving and high nec-
Credit form China is increasingly important in the essary investment are leading to persistent fiscal
region because of the Chinese government’s deficits and growing indebtedness. In Ethiopia,
policy of “going global” and because of its easy investment as share of GDP was about 40 percent
12 M acroeconomic developments and prospectsTABLE 5 Domestic resource mobilization and financial sector development in East Africa,
by country, 2016 and 2017
Domestic Domestic Gross
credit in credit to domestic
banking the private saving (%
M2 sector sector of GDP) Tax-to-GDP
Country Year (% of GDP) (% of GDP) (% of GDP) (%) ratio
Burundi 2016 23.7 35.0 16.7 –8.8 ...
2017 24.7 32.8 13.8 ... ...
Comoros 2016 45.7 31.3 26.5 ... ...
2017 45.1 30.2 27.3 ... ...
Djibouti 2016 96.9 34.6 30.2 11.6 ...
2017 113.0 35.0 31.7 10.3 ...
Ethiopia 2016 4.0 ... 22.4 ... ...
2017 3.5 ... 24.1 ... ...
Kenya 2016 38.4 42.6 32.7 7.6 15.8 It is imperative to
2017 38.9 42.6 31.0 5.4 ... implement policies
Rwanda 2016 20.8 18.9 21.0 7.7 14.8 that enhance
2017 ... 19.0 20.9 8.9 ...
domestic resource
South Sudan 2016 31.7 1.0 13.4 2.0 10.5
2017 ... 1.0 ... ... ... mobilization,
Sudan 2016 20.3 22.5 8.9 20.0 ... including improved
2017 ... ... ... 20.9 ... tax administration,
Tanzania 2016 22.2 20.2 14.4 23.9 ...
financial sector
2017 ... ... ... ... ...
Uganda 2016 22.9 23.4 15.6 15.5 13.5
development, and
2017 23.4 23.2 15.0 16.5 ... financial innovation
...is not available.
Note: Data for Eritrea, Seychelles, and Somalia are not available.
Source: World Bank 2018b.
in 2017, while domestic saving as share of GDP debt stock of $283 billion.13 Thus, policies that
was about 22 percent (though experts estimate curb capital flight and possibly reverse what is
that it is closer to 10–15 percent). This wide gap already left could contribute to domestic resource
is financed through debt, leading to a debt-to- mobilization.
GDP ratio of close to 60 percent, divided equally
between external and domestic.
It is imperative to implement policies that POVERTY, INEQUALITY,
enhance domestic resource mobilization, includ- UNEMPLOYMENT, AND
ing improved tax administration, financial sector STRUCTURAL CHANGE
development, and financial innovation. In addi-
tion, illicit financial flows from Africa could be as As in 2017, East Africa’s strong growth has not
much as $50 billion a year, more than double been matched by commensurate and significant
official development assistance.12 Over 1970– reduction in poverty and inequality.14 As a result,
2010, African lost an estimated $1.3 trillion in the in 2018 the region remains characterized by high
form of capital flight, many times the continent’s poverty, inequality, and unemployment.
M acroeconomic developments and prospects 13Trends in poverty and inequality hide considerable variation across countries.
Poverty pervades all East African countries, though Inequality is highest in South Sudan, Comoros,
the region’s average (33.3 percent at $1.90 a day and Djibouti and lower in Burundi, Tanzania, and
and 55.3 percent at $3.10 a day) is lower than the Sudan. Inequality should be a major concern for
Sub-Saharan Africa average (42.1 percent and policymakers because it adversely affects poverty
66.3 percent; table 6). Poverty is lowest in Sey- reduction and causes a lack of social cohesion
chelles, Sudan, and Comoros and highest, above that could lead to conflict.16
60 percent at $1.90 a day, in Burundi and Rwanda. It is striking that poverty and inequality are so
Poverty is more pronounced at $3.10 a day, rang- high despite efforts to address them. In Ethio-
ing from about 40 percent in Comoros and Sudan pia, the government committed 60 percent of its
to an extremely challenging 89 percent in Burundi. 2018 budget to poverty-targeted sectors such as
The situation is also reflected in the United Nations education, health, agriculture, water, and roads.
Development Programme’s Human Development Tanzania and Sudan had a similar focus on rais-
Index values, which range from 0.400 (on a scale of ing agricultural productivity and pursuing growth
0, low, to 1, high) in Burundi and 0.420 in Eritrea to led by agro-industrialization. The persistent pov-
0.550 in Kenya, with Seychelles (0.780) an outlier.15 erty and inequality call for further research and
East Africa faces a severe inequality prob- re-examination of the policies pursued. In coun-
lem. On average, 48.4 percent of income goes to tries such as Somalia and South Sudan that have
the richest 20 percent of income earners in the faced peace and security challenges and need
region, and 30 percent goes to the richest 10 per- policy direction most, spending has focused on
cent. By contrast, only 6 percent of income goes defense and security, the priorities for these coun-
to the poorest 20 percent, and only 2.3 percent tries, rather than on agriculture and related pover-
goes to the poorest 10 percent. But averages ty-reducing sectors.
TABLE 6 Poverty and inequality in East Africa, by country, various years
Poverty Inequality
Share of income going to each population
Population Population segment
living on less living on less (%)
than 2011 PPP than 2011 PPP
Reference $1.90 a day $3.10 a day Reference Richest Richest Poorest Poorest
year (%) (%) year 10% 20% 10% 20%
Burundi 2006 71.7 89.2 2013 31.0 46.3 2.8 6.9
Comoros 2013 18.1 38.1 2014 33.7 50.4 1.6 4.5
Djibouti 2013 22.5 44.6 2013 34.1 50.0 1.7 4.9
Ethiopia 2010 33.6 71.3 2015 31.4 46.7 2.6 6.6
Kenya 2005 33.6 58.9 2015 31.6 47.5 2.4 6.2
Rwanda 2013 60.4 80.6 2012 37.9 52.2 2.4 6.0
Seychelles 2014 1.1 2.5 2013 39.9 53.0 1.9 5.4
South Sudan 2009 42.7 63.5 2010 33.2 50.6 1.3 3.9
Sudan 2009 14.9 38.9 2009 26.7 42.4 2.6 6.8
Tanzania ... ... 2011 31.0 45.8 3.1 7.4
Uganda 2012 34.6 65.0 2016 34.2 49.8 2.5 6.1
Average 33.3 55.3 30.0 48.4 2.3 6.0
...is not available.
Note: Data for Eritrea and Somalia are not available.
Source: World Bank 2017.
14 M acroeconomic developments and prospectsUnemployment, structural change, with structural transformation in East Asia and
and poverty reduction without structural transformation in Africa. Despite
The impressive growth of East Asian economies Sub-S aharan Africa’s impressive growth since
such as China, the Republic of Korea, and Taiwan 2002, 47 percent of the population still lives on
over the past four decades shows that high and less than $1.25 a day. Between 1981 and 2008,
inclusive growth underpinned by structural trans- the poverty rate declined by only 4 percent-
formation can greatly reduce poverty. The limited age points. In contrast, East Asia’s poverty rate
change in poverty in Africa, despite impressive dropped dramatically, from 77 percent in 1981 to
nontransformational and noninclusive economic 14 percent in 2008, or 63 percentage points.24
growth since the turn of the century, supports this Changing the sectoral composition of growth
conclusion.17 was also important in reducing poverty in Asia.
This report advocates for structural transfor- But to promote growth of the appropriate sector,
mation policies in line with much research over policymakers must carefully study the country sit-
the past few years. Africa’s impressive growth uation. Where poverty is high in the rural sector
between 2000 and 2009 was the result of rapid and structural transformation possibilities are low,
growth in exports of hard commodities and cap- agricultural growth remains important for some
East Africa’s
ital inflows. Most of the extra income generated time. Otherwise, growth in the secondary sector
was absorbed by middle-class consumption.18 may be more inclusive. Both approaches require economic structure
In 38 of 49 countries, imports grew more than active policies to abate inequality and ensure and growth patterns
exports after this growth episode. Only agricul- a flexible labor market with high labor absorp-
are characterized by
ture grew slowly, and most countries experienced tion.25 India has also seen structural transforma-
deindustrialization. This growth pattern did not tion reduce poverty, but the country’s experience low industrialization
create enough decent jobs for young people. It shows that structural transformation needs to be —including lack
also established a vulnerable economic structure accompanied by distributional policies and that of economic
in which the entire economy depends on a single increasing the share of industry is reduces poverty
or small number of commodity exports.19 The pat- while increasing the share of services and agricul-
diversification,
tern results from low industrialization and value ture is poverty neutral.26 product
adding economic activity.20 Thus, inclusive and Services dominate the composition of GDP differentiation, and
transformative development strategies are essen- in East Africa, at 59.0 percent in 2016, followed
tial for translating Africa’s recent growth momen- by agriculture, at 25.7 percent (table 7). Industry,
sophistication—
tum into decent jobs and poverty reduction. which includes construction, accounts for only and insufficient
Industrialization is often taken as a sure way 15.3 percent of GDP, below the Sub- S aharan job creation
of breaking the commodity boom and bust cycle Africa average of 27.7 percent. East Africa’s eco-
and ending dependence on primary commodity nomic structure and growth patterns are charac-
exports.21 In Africa, the process entails a relative terized by low industrialization—including lack of
decline in low-productivity agriculture and low economic diversification, product differentiation,
value added extractive activities and a relative and sophistication—and insufficient job creation.
increase in manufacturing and high-productivity Similarly, manufacturing value added grew by just
services.22 African economies’ inability to accel- 1.7 percent over 2000–16, which was less than
erate this diversification and structural transfor- GDP growth, reducing the manufacturing sector’s
mation, and hence to benefit from the technol- share in GDP. Average manufacturing value added
ogy-driven dynamism of globalization, has kept in GDP was just 8.1 percent, far below the Sub-
them vulnerable to external shocks and resulted Saharan Africa average of 10.3 percent in 2016.27
in limited poverty reduction. This is why structural The average share of manufactured exports in total
transformation is advocated as policy direction for merchandise trade, 14.6 percent, also shows the
job creation and poverty reduction in a sustainable region’s lack of structural transformation. Notwith-
manner.23 standing this poor performance on average, some
This policy direction is also motivated by the countries—Ethiopia, Kenya, Tanzania, and Uganda
contrasting poverty reduction outcome of growth —have made progress in industrialization recently.
M acroeconomic developments and prospects 15You can also read
