Lower commodities prices have had some far-reaching effects on African economies.
For exporters, weaker revenue has damped growth. Consider Nigeria, Africa’s largest economy and biggest oil producer. The country’s GDP contracted 2.1 percent in the second quarter, following a 0.4 percent slump in the first. Adjusting to this new reality will take time for energy exporters.
However, most African economies are not in the oil business. For them, lower fuel costs support growth and living standards. So fortunes are set to diverge across the continent.
In fact, the narrative could change from “Africa Rising” to “Africa Tilting” as commodity exporters in west, central, and southern Africa struggle to find new sources of growth, while east African economies develop and integrate into a more robust — and potentially huge — regional market.
Deeper integration, better-functioning markets and improved infrastructure could all bear fruit as the continent pursues other sources of growth.
East Africa is leading the way. The African Development Bank, in its inaugural Africa Regional Integration Index Report, rated the East African community — Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda — as the top-performing regional economic community on the continent.
The report found that the bloc has advanced furthest in reducing cross-border barriers to trade and other economic activity and is ahead of its peers in the categories of trade and productive integration.
Deeper integration should create larger markets, enabling companies to specialize more and reap economies of scale. That could support an expansion of manufacturing, which is needed to boost growth and macroeconomic stability.
Economies in east Africa are generally small. Incomes are low, with most people earning the equivalent of only a few US dollars per day. As a result, foreign investors have focused instead on larger economies, such as those of Angola, Nigeria and South Africa, and on companies like banks, brewers and cement makers that are located close to market.
Some global manufacturers have lately been looking at opportunities in Kenya: Volkswagen plans to assemble cars at a plant north of Nairobi, the government announced last month.
Kenya’s economy is doing well in its own right, with GDP growing 6.2 percent in the second quarter.
Also helping to attract interest is the East African Common Market, launched in 2010 to enable the free movement of goods, people, capital and services across the region.
Transport links, such as the Standard Gauge Railway, are also encouraging investors. Kenya’s state-owned rail company, with financing from China, is developing the first phase, which is to connect the port city of Mombasa to Nairobi. The 472km section is slated to open in July next year.
Eventually, the railway is to run to Kampala, Kigali and Bujumbura. Once complete, the network is to expand from serving 44 million Kenyans to more than 160 million people in the bloc.
Additional links have the potential to create an enormous market. Further investments in transportation over the medium term could broaden the reach of the East African Common Market to the vast Democratic Republic of the Congo and fast-growing Ethiopia.
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