East Africa Regional Overview

Regional Overview

The East Africa region covers 13 countries with overlapping memberships in four African Union-recognized regional economic communities. These regional economic communities are the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), the Intergovernmental Authority on Development (IGAD), and the Southern African Development Community (SADC).
Other regional blocs to which some of the countries belong are the Indian Ocean Community, the Economic Community of Great Lakes Countries, and the Economic Community of Central African States.
The 13 countries are Burundi, Comoros, Djibouti, Ethiopia, Eritrea, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania, and Uganda.

East Africa has been the continent’s fastest-growing region in recent years. It is home to several of the fastest-growing economies, including Ethiopia, Djibouti, Kenya, Rwanda, Tanzania, and Uganda. In 2020, Tanzania became the latest country in the region to graduate from low-income to middle-income status, joining three of its neighbours in the World Bank’s lower middle-income category – Kenya, Comoros and Djibouti. One country, Seychelles, is classified as high-income, while the rest are low-income.

The region’s growth rate averaged 4.9% in 2018 and 5.3% in 2019, compared with 3.3% and 3.4% in Africa overall. However, because of the Covid-19 pandemic, the region’s growth rate fell to 0.7% in 2020, but remained well above Africa’s overall slump of -2.1%, making the region the only one in Africa to have avoided a recession amidst the pandemic. East Africa’s resilience in 2020 was buoyed by positive economic growth rates in Ethiopia, Tanzania, Kenya and Djibouti, supported by a more diversified service sector, sustained public spending on large infrastructure projects and a good performance in agriculture, despite desert locust invasions and other natural disasters such as droughts and floods.

However, political fragility in some countries, reliance on a narrow range of economic activities and limited progress towards higher value-added production, were major hindrances to growth. Overall, the Covid-19 pandemic had diverse effects across the region in 2020. Countries that are highly dependent on tourism, such as Seychelles and Comoros, experienced the most severe impacts compared to more diversified countries like Kenya and Ethiopia. Countries with diversified export baskets, like Tanzania, were slightly more resilient due to favourable commodity prices, particularly gold. The Covid-19 pandemic is expected to impede gains towards inclusive growth. The pandemic-induced economic slowdown has pushed up poverty levels in the region. The share of the population living in extreme poverty is expected to rise to 35% in 2021, equivalent to about 134 million persons, compared to 33%, or 122 million people in 2019.

East Africa’s GDP growth is projected to recover to 3% in 2021 from 0.7% in 2020, supported by the global economic recovery and ongoing reforms to strengthen economic governance. However, the slow roll-out of Covid-19 vaccines, and uncertainties around additional waves of infections, may dampen this economic outlook. 

The African Development Bank Intervention Strategy in the Region

East Africa’s overarching development challenge is the slow pace of structural transformation and limited progress towards inclusive growth. Manufacturing (value-added) is below 15% of GDP on average across the region. Human Development Index scores tend to be low and unemployment is high, especially among the youth.

The underlying development challenges include poor infrastructure connectivity, especially in transport and power; persistent non-tariff barriers to trade; limited economic diversification, slow implementation of regional agreements; and weak capacity within the regional economic institutions. These constraints are compounded by geographic, spatial, and social factors, such as the large number of landlocked countries (5 out of 13), the geographic isolation of small island states, and pervasive fragility (6 out of 13 countries). These challenges have been exacerbated by pandemic-linked disruptions in production and supply chains, and increased debt distress, which will slow trade and delay the implementation of crucial regional integration initiatives like road construction projects.

In recognition of its overarching development challenge, the main objective of the Bank’s intervention strategy in the region, as outlined in its East Africa Regional Integration Strategy Paper for 2018-2022, is to accelerate structural transformation, focusing on two priority areas: (i) regional infrastructure development, and (ii) strengthening the policy and institutional frameworks for market integration, investment, and the development of value chains. The Bank’s interventions include strategic operations that regional economic communities and member countries identified as game-changers in East Africa’s regional integration agenda. These are some of the interventions: priority transport corridors to connect markets and link landlocked countries to their regional neighbours and seaports; one-stop border posts to reduce border delays and associated trade costs; power interconnectors to enable countries that have more electricity to trade with those that have less; and feasibility studies to prepare bankable regional infrastructure projects. The Bank is also providing support to regional institutions such as the Eastern Africa Power Pool, the Tripartite regional economic communities (COMESA-EAC-SADC) and the African Union to operationalize the African Continental Free Trade Area, and the African Union Development Agency AUDA-NEPAD to accelerate the implementation of the Program for Infrastructure Development in Africa (PIDA).

 

In March 2021, the Bank’s overall active portfolio in East Africa stood at $13 billion. Multinational and regional operations comprised 97 projects with 121 financing instruments worth $4.3 billion or roughly 33% of the portfolio, while the rest are national operations. The sovereign portfolio comprises 85 projects worth $3.5 billion, while the non-sovereign portfolio contains 12 operations worth $904 million. The sovereign multinational and regional portfolio is concentrated in five countries: Tanzania (19.9%), Kenya (18.3%), Ethiopia (15.7%), Uganda (15.3%), and Rwanda (10.7%). The transport and power sectors are the largest, accounting for 56% and 25% of the portfolio, respectively (table 1). In terms of alignment to the Bank’s High 5s, 24% of operations are related directly to Light up and power Africa; 11% to Feed Africa; 2.5% to Industrialize Africa; 52% to Integrate Africa; and 10.5% to Improve the quality of life of Africans. In order of magnitude, the sources of funding for the regional and multinational portfolio are as follows: the African Development Bank sovereign (UA 904 million – about $1.266 billion), African Development Bank non-sovereign (UA 2.25 billion – about $3.15 billion), the African Development Fund ($720 million), and the Accelerated Co-Financing Facility for Africa ($178 million), the European Union ($140 million), and various external resources mobilized and managed directly by the Bank.

*The conversion rate used is UA 1= $1.4

 

 

MAP OF EAST AFRICA