East African economic update: Inflation outlook & investment opportunities

East African economies are experiencing contrasting trends in their economic landscapes, with Kenya's Nairobi Securities Exchange (NSE) anticipating a surge in foreign investment due to improved currency access, while Uganda grapples with a projected rise in inflation. The average inflation rate in Uganda is forecasted to increase between 2024 and 2029 by a total of 1.2 percentage points, posing potential challenges to the economy. In a recent interview on CNBC Africa, Pamela Akidi, Manager Retail Sales Global Markets at Stanbic Bank Uganda, shed light on the implications of these economic developments. One of the key topics discussed was the contribution of the Central Bank of Kenya to stabilising the foreign exchange market. Pamela highlighted recent reforms implemented by the new Governor of the Central Bank of Kenya, which aimed at supporting foreign exchange initiatives. These reforms included reviewing swap limits for non-residents, reducing the minimum amount traded in the interbank, and lifting the ban on the brokerage electronic system. These measures have led to a revival in the FX interbank market and contributed to the appreciation of the Kenyan shilling. Additionally, factors such as the positive reserve build-up, attractive yields on infrastructure bonds, and the issuance of green bonds have enhanced the attractiveness of Kenyan securities to foreign investors. However, concerns have been raised regarding the proposed tax exemption removal for infrastructure and green bonds, which could discourage offshore investors from participating in the Kenyan economy. Turning to Uganda, Pamela discussed the primary factors driving the forecasted increase in the country's average inflation rate. She identified global uncertainties such as geopolitical tension leading to commodity price increases, the impact of weather conditions on food production, and currency depreciation as key contributors to the projected inflation rise. Uganda's heavy reliance on imports and the vulnerability of its food basket to weather-related events are expected to influence inflation numbers over the coming years. The open market nature of Uganda's economy also exposes it to currency depreciation, further exacerbating the inflation outlook. With a forecasted inflation rate increase of 1.2% between 2024 and 2029, Uganda faces challenges in managing economic stability and growth. Despite these challenges, both Kenya and Uganda are actively navigating their economic landscapes to attract investment and drive sustainable development in the region. The contrasting trends in these East African economies highlight the diverse factors shaping their economic outlooks and underscore the importance of proactive measures to address emerging challenges.