Top sectors to watch in East African Community in 2024

East African economies are expected to grow by 5.1 percent in 2024 and 5.7 percent in 2025 bouyed by the service, tourism and transport sectors, according to a new report.

The East African Economic Outlook 2024 released by RSM Eastern Africa Consulting Ltd, an audit, tax and consulting firm, shows that the agriculture, manufacturing, financial, and infrastructure sectors grow in Kenya, Tanzania, Rwanda and Uganda.

Kenya's economy, it says, grew by 5.9 percent in Q3 of 2023.

“The agriculture, forestry, and fishing sector registered 6.7 percent growth in Q3. The improved performance was attributed to favourable weather conditions that characterised the first three-quarters of 2023,” said Ashif Kassam, executive chairman of RSM Eastern Africa.

In Kenya, the financial and insurance sector grew by 14.7 percent in the third quarter of 2023. Construction saw 3.8 percent growth in Q3 2023, while cement consumption rose by 5.9 percent.

Credit to enterprises in construction increased by 8.6 percent to stand at Ksh149.6 billion in September 2023.

On the regional front, Kenya recorded a positive trade balance with EAC Partner States of $408.3 billion.

“The service sector in both Kenya and Tanzania has been the driving force of economic growth in the region,” said John Bosco Kalisa, CEO, and the East African Business Council.

“Services exports increased to 10.7 billion in 2021 from 8 billion in 2020. A significant increase by 34 percent. EAC services exports are dominated by the travel and other services categories representing more than two-thirds of total trade in services.”

Tanzania's real GDP growth is expected to reach 6.3 percent in 2024, fuelled by the rebound in tourism and continued investment in public infrastructure.

“In Tanzania, the agricultural sector boosted the country's GDP growth by 14.2 percent. Crops in the Q3 grew by 3.8 percent due to an increase in crop production as a result of using improved technology and inputs,” said Kassam.

“This growth was driven by key sectors like agriculture, transportation and storage, and financial and insurance services.”

The financial and insurance sector grew by 14.7 percent in the third quarter of 2023.

The report which was presented during the EAC CEO Roundtable on Tuesday in Nairobi, says that on the economic outlook, the EAC economy has shown resilience amidst global challenges.

Studies by the African Development Bank Report of 2024 point to the EAC as a region with some of the fastest growing economies.

However, Kepsa is concerned with the frequent Stay of Application to the EAC Common External Tariff by EAC member states.

“It creates unlevelled playing field to manufacturers in the region distorting the market making imports outside the EAC bloc cheaper,” said Kepsa Chairman Jas Bedi.

“The projected global economic slowdown from 3 percent in 2023 to 2.9 percent in 2024 may potentially dampen exports and foreign direct investment in both Kenya and in the region.”

Illicit trade, counterfeits, sub-standard goods, high cost of electricity, transport and currency depreciation are among the main causes of the high cost of doing business in the region.

Despite a strong projected growth, however, there are some mixed signals to this performance.

“Inflation will remain high over the first half of the year but will moderate sufficiently by the last quarter, allowing the CBK to begin monetary easing,” the report says.

The Kenya government controls fiscal policy through various new tax rates and levies have been introduced as a result of the Finance Act 2023 including a housing levy chargeable on personal emoluments.

The VAT rate on fuel was standardised to 16 percent, and the capital gains tax increased to 15 percent.

The Central Bank of Kenya maintained a high-interest rate of 10.5 percent throughout the quarter, potentially impacting borrowing and investment.

The depreciation of the Kenyan shilling against all major currencies, averaging over 20 percent decline did not help matters.

“Kenya was among the four EAC Partner States in the top performing economies in Africa in 2023. It is also envisaged that EAC Partner States will have a strong economic rebound, with an expectation to attain a GDP growth rate ranging from 4.1 percent to 7.2 percent,” said EAC Deputy Secretary-General for Customs, Trade, and Monetary Affairs Annette Mutaawe Ssemuwemba.