How EA can reach middle income slot

Dar es Salaam. The prospects of a strong East African Community (EAC) lies in its ability to marshal economic development, the International Monetary Fund (IMF) says in its recent report.The region needs to refocus its attention to economic issues if it is to attain the threshold of middle-income countries by 2020, the ‘Regional Economic Outlook’ report released recently.

A country has to attain a per capita status of $995 to qualify as a middle-income country in line with the World Bank guidelines. From this benchmark, EAC members need to maintain an 8.5 per cent growth rate per year over the remaining part of the decade.

However, according to a report by the International Monetary Fund (IMF) released recently, Kenya is closer to the middle income levels with a nominal GDP per capita of $762, despite lower real GDP per capita growth over the last two decades. Rwanda, Uganda, Tanzania, and Burundi follow respectively with $533, $525, $517 and $164 of nominal GDP per capita.

However, IMF says in the report released last month that EAC member states have been among the fastest growing in sub-Saharan Africa (SSA) and more broadly in the developing world in recent years.

Rwanda, Tanzania and Uganda, were among the fastest growing economies in the world during 2005–09. In the period, the three countries registered an average of 6.4 per cent real GDP growth, which is higher than Sub-Sahara’s average of 5.6 per cent real GDP growth.

But economic experts argue that the region is not doing so well in several areas as almost all member states are bogged down by very high cost of doing business.

According to the global competitive index all the EAC countries except Rwanda have unfavourable competitive environment. Rwanda has a global ranking of position 80 while other countries are ranked above position 100.
Speaking on the achievements of EAC, Dr Diodarus Kamala, Patron, East Africa Policy Foundation (EPF), said the extensive macroeconomic and policy reforms, which have been one of the sources of economic growth need continuous fine-tuning.

He noted that the EAC lacks in terms of export growth and savings mobilisation due to limited physical and financial infrastructure.Dr Kamala also observed that deeper regional integration, particularly in trade and investment among both public and private sectors, could raise productivity, reduce costs and facilitate higher exports.

“We must attain the bare minimum or an acceptable amount of macroeconomic convergence. The monetary policies and their implementation structures at national level need to be closely analysed,” he said.

While he admits that EAC is well positioned to take advantage of new trade and financing opportunities offered by the changing global economy, the former minister for EAC warned that fiscal revenue and spending will need to be carefully managed.

He said one of the important steps the governments should take is to review their fiscal policies in order to curb recurrent expenditures, adding that this is in relation to too much borrowing while tax revenue collections dwindle.
Mr Godwil Wanga, a research consultant with the Economic and Social Research Foundation (ESRF) while presenting a paper at a breakfast debate organised by the Policy Forum in Dar es Salaam last Friday, noted that the region still faces a lot of challenges.