It is official: Kenya is no longer the largest economy on this side of the Sahara. That coveted trophy goes to Ethiopia.
Addis Ababa’s double-digit growth has seen Ethiopia speed past Kenya, leaving Nairobi on a precarious second position in economic ranking in Eastern Africa.
And with a resurgent Tanzania breathing heavily down Kenya’s neck, analysts think it’s just a matter of time before Dar es Salaam deposes Nairobi from that second spot.
According to the IMF’s latest report, Ethiopia’s gross domestic product (GDP) - or the total value of goods and services produced annually - hit Kshs 7.4 trillion in 2016 compared to Kenya’s Ksh 7 trillion in the same year. And there is no respite for Kenya as Tanzania, which according to the World Bank has “maintained relatively stable, high growth” of between six and seven per cent over the last decade, seems to have cast its eyes on toppling Kenya as the East African Community economic kingpin.
Indeed, according to the World Bank’s Global Economic Prospects 2017, Ethiopia, Tanzania and Rwanda are all expected to post higher GDP growth rates than Kenya. In fact, Ethiopia’s and Tanzania’s growth rates will be the first and second highest respectively in Sub-Saharan Africa in the next three years. Tanzania’s GDP has more than doubled in the last 10 years, growing from $21.5 billion in 2006 to a high of $48.2 billion in 2014. It dropped slightly in 2016.
Corruption and wastage Gerrishon Ikiara, an economics lecturer and former permanent secretary in Kenyan president Mwai Kibaki’s government, says he is not amused by these developments. He notes that Ethiopia has “always been a strong economy in the region” while Tanzania is re-awakening after the years of socialism under the late Mwalimu Julius Nyerere.
Observers note that underpinning the strong growth in these countries - including another fast-growing EAC member Rwanda - is their relatively strong governance structures. Most of these countries have a zero-tolerance towards corruption and wastage that have become endemic in Kenya. Of the nine Eastern Africa countries, only Uganda ranks above Kenya in Transparency International’s corruption perceptions index.
“Ethiopia is a country we need to watch, it is on the rise,” says Dr Samuel Nyandemo, a development economist and lecturer at the University of Nairobi. “The institutional framework in place in Ethiopia has made mobilisation of resources and put it into good use,” he adds.
This stability has seen Ethiopia’s real estate flourish, manufacturing industry reboot, and transport sector modernised. Ethiopia’s march to the pinnacle has been aided, in large part, by the massive infrastructural projects funded by China. A recent article in China Daily quoted a senior Ethiopian official as saying that Chinese firms have invested a whopping $4 billion in Ethiopia in the last two decades.
In addition, Ethiopia’s huge population has been a source of cheap labour, an attractive incentive for many manufacturing firms eager to set base in the region but wary of the high cost of production in most African countries. “Ethiopia’s wages for garment workers are among the lowest globally, at below $60 per month, and work-permit costs for foreign workers are less than one-tenth those in neighboring Kenya,” read the article.
It continued: “Additionally, Ethiopia has low electricity prices. The country has a strong supply of hydroelectric power, and while the power grid is not the most reliable, the Ethiopian government is building a separate grid for new industrial zones currently under development.”
On the other hand, manufacturers and buyers lamented that comparatively high labour costs were a challenge of doing business in Kenya. Monthly wages for garment workers was estimated in the $120 to $150 range.
“Energy costs are also high, and because the power supply is spotty, factories often have to rely on generators. In Africa, power from generators works out to be four times as expensive as power from the grid,” read the article titled ‘East Africa: The next hub for Apparel Sourcing?’
There is also a concern that land compensation in Kenya has in recent times cost the country a number of key projects. While it is not very clear why Uganda snubbed Kenya for Tanzania for its oil pipeline, a few Ugandan officials were reported saying that expensive land acquisition was one of the reasons Kampala re-routed its pipeline to Dares Salaam.
Regional powerhouse Last year, receiver managers of Kinangop Wind farm decided to pull the plug on the Ksh15 billion mega-power project which was expected to wire an additional 15,000 homes to the national grid, citing a land compensation stalemate between the contractor and locals in Kinangop, Nyandarua County. Interestingly, Ethiopia’s model has also been assumed by Tanzania, a country that can as well be described as sleeping giant with its vast resources.
Ikiara says that if Tanzania could have been well managed right from independence, they could have been far ahead of Kenya. But the country has, slowly but surely, embarked on a process of reclaiming its place in the region’s economic pecking order, especially following the election of no nonsense president John Pombe Magufuli who doesn’t tolerate complacency or criticism in equal measure.
Magufuli’s goal, it seems, is to topple Nairobi as East Africa’s regional hub and regional powerhouse. Dar es Salaam wants to achieve this by, first of all, keeping Kenya at arm’s length and frustrating a successful EAC integration, according to Ikiara Magufuli, despite coming under attack for muzzling dissenting voices, has moved with speed to seal all loopholes of pilferage.
As pangs of hunger bit following a debilitating drought that ravaged the whole of Horn of Africa, Magufuli is said to have lectured Tanzanians against expecting the government to feed them, proclaiming that the government “did not have farms.” The result has been, while Kenya’s drought situation has driven inflation to a five-year high of 11.5 per cent, in Tanzania inflation still remains within the government’s target. And it looks like Kenya is losing the battle for the control of the East African region to Tanzania.
Dr Nyandemo notes that Tanzania’s southern corridor, rather than Kenya’s northern corridor, is fast turning into a favorite route for the landlocked countries of Uganda, Burundi, Rwanda. And even as Kenya embarks on building a 32-berth port at Lamu under the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) agreement, Tanzania has also inked a deal with the Chinese that will see the development of a similarly large port at Bagamoyo, which is expected to handle about 20 million containers. It has been billed as East Africa’s race for the biggest port.
“Most tourists are flocking to Tanzania helped by the terrorist attacks in Kenya and the relaxation of visa-entry rules,” noted Nyandemo, adding that the cost of visiting tourist sites has also gone down. And all these efforts have started paying off. EAC volumes of trade - both service and manufacturing - seem to be favoring Tanzania more, according to Nyandemo.
“This is seen by total value of transactions. Indeed while Rwanda is leading the service sector, it is followed closely by Tanzania. The service sector is boosted by tourists and the southern corridor,” explained Nyandemo.
Tanzania also recently launched the construction of its own standard gauge railway, electric-driven unlike Kenya’s that is diesel-driven, as it keeps up the pressure on its neighbour. “I will not be surprised if the coming five years, Tanzania is also ahead of Kenya,” says Ikiara.
But there is hope for Kenya, which, according to Ikiara, is also doing “fairly well.” With the SGR, Nyandemo feels that Kenya might redeem itself and not be deposed by Tanzania. “With the SGR in place, and if we minimize the bureaucracy at the point of entry, we will catch up,” said Nyandemo.