Ethiopia to emerge as EA's largest economy - Report

The second annual East Africa Investor Conference started on a high note in Nairobi as Renaissance Capital released a report highlighting key economic indicators for the region. The report revealed that Kenya's shilling is overvalued by 20% against the US dollar, with investment to GDP standing at 21.5%. However, the most striking prediction was that Ethiopia is poised to become the largest economy in East Africa by 2016, surpassing Kenya's GDP contributions. Charles Robertson, the Global Chief Economist at Renaissance Capital, shed light on the economic outlook for East Africa. According to Robertson, the Kenyan shilling is currently strong relative to its historical trends, potentially impacting export competitiveness. Despite this, he expressed optimism about the currency's stability in the near term, citing increasing foreign reserves. Investment to GDP in Kenya is at 21.5%, indicating room for growth to drive the economy towards middle-income and developed status. Robertson emphasized the need for more investment, increased manufacturing activities, and boosted exports as key areas for Kenya's economic advancement over the next decade. Ethiopia's economic momentum, on the other hand, has caught many by surprise. The country's high investment rate of around 40% of GDP has propelled significant growth, positioning it to overtake Kenya in economic size. However, Robertson highlighted the trade-off between growth and economic freedom in Ethiopia, noting restrictions on currency transactions and business operations imposed by the government. While Ethiopia may surpass Kenya in total GDP, on a per capita basis, Kenya leads with a GDP per capita of $1,488 compared to Ethiopia's $700. Nonetheless, Robertson also lauded Rwanda's impressive economic growth and business-friendly environment, pointing to the nation's success as a promising story within the East African landscape. In the sectoral analysis, the manufacturing sector in Kenya has grown by 3.2%, contributing to overall economic expansion. Discussions on the aviation and tourism sectors underscored the contrasting fortunes of Kenya and Rwanda in attracting tourism revenues. Rwanda's strategic investments in aviation infrastructure and tourism offerings have positioned it as an emerging tourism hub, capitalizing on attractions like gorilla trekking. Looking ahead to the second half of 2016, Robertson expressed cautious optimism for Kenya's economic outlook. Despite the overvalued shilling and moderate investment to GDP ratio, favorable factors like continued capital inflows and a revival in the tourism sector are expected to support economic stability. In conclusion, Renaissance Capital's report paints a mixed picture of East Africa's economic landscape, with Ethiopia on track to lead the region in GDP size, while Kenya focuses on enhancing investment, manufacturing, and export capabilities for sustained growth.