‘East African nations need to invest more in agriculture’
East African nations need to invest more in agriculture, which is one of the leading driving forces t regional economic growth this year, a new study has suggestesd.
A new study by the Standard Chartered Bank also shows that banking sector is also poised to drive the growth if interest rates remain low to attract borrowings for businesses.
Unveiling the East Africa Economic Outlook 2020 on Wednesday through a webcast session, the banks economist for Africa, Sarah Baynton-Glen said agriculture will make bigger contribution to the growth than other sectors.
“The government is targeting U$2bn of annual horticulture exports by 2025 up from the U$821mn in 2018. Resolution of issues arising from state intervention in agriculture and mining should also provide a more positive backdrop to growth in 2020 and support Tanzania’s foreign exchange (FX) market, with greater cashew exports and the expected resumption of gold and copper concentrates exports” said Baynton-Glen.
According to her, Standard Bank expects relatively robust Gross Domestic Product (GDP) growth of 6.5 per cent in 2020 from 6.6 per cent in 2019, with inflation forecast at 4.2 per cent from a low of 3.4 per cent in 2019.
“Following an easing of monetary policy in 2018/19, private-sector credit extension is starting to accelerate, having previously been in negative territory in 2017. The current account deficit will likely stay wide in 2020;
While we have revised our 2019 deficit forecast to 4.2 per cent of GDP from the previous 5.6 per cent, we see it expanding in 2020 to 4.5 per cent of GDP due to higher imports” she said.
She asserted that in 2019, the trade deficit increased on higher capital goods and oil imports. The situation was despite higher gold exports, which increased by 26 per cent in the year ended September 2019 due to higher prices and the recommencement of cashew exports.
The economist commend that the Central bank has done much on cutting down the discount rate that has eased liquidity to lenders thus proper regulations enforced in making sure that a common man benefits through loans especially famers.
She explained that higher food prices offset by lower energy costs and FX reserves have recovered from 2019 low but fiscal deficits typically undershoot targets.
Speaking of economic growth forecast in Kenya, Razia Khan, Chief Economist Africa and Middle East hinted that agriculture will be a key economic growth driver though the key test will be the strength of its fiscal consolidation intent.
“We expect Kenya’s economy to accelerate 5.8 per cent in 2020, with private-sector credit growth receiving a boost from the loan rate cap removal, and recent central bank easing. Although the recent locust invasion is a source of potential pressure on agriculture, creating a firm base for sustained medium-term growth will matter much more” said Khan.
She asserted that following the loan rate cap removal, existing bank loans will not reprice higher. However, a more favourable credit growth environment should boost activity, creating more business demand for borrowing not just for working capital purposes, but for longer-term investment.
For the part of Uganda, she said the bank expect the Bank of Uganda to keep its policy rate on hold at 9.0 per cent throughout 2020, having previously seen scope for more easing.
“Uganda’s fiscal policy challenges will remain centred on raising its low rate of revenue collection. Ideally, the authorities want to see a gradual increment of at least 0.5ppt of GDP in revenue each year. Achieving sustained progress in revenue mobilisation, especially with elections approaching, has traditionally been a challenge,” affirmed Khan.
Addressing Commercial banks executives in Dar es Salaam from Tanzania, the East Africa Community (EAC), and Southern African Development Community (SADC) at the 19th Conference of Financial Institutions, held late November last year, the Minister of Finance and Planning, Philip Mpango, blamed financial institutions for not playing their role effectively in financing farmers and the agriculture sector in general.
He said less than 5 per cent of the gross loans offered by Commercial banks and other financial institutions is allocated to the agriculture sector.
