By Douglas Wekhomba, practitioner at Inter-Alliance International (Africa) East Africa has tradi...
By Douglas Wekhomba, practitioner at Inter-Alliance International (Africa)
East Africa has traditionally suffered political and economic instability, which has created a disincentive to foreign direct investment and economic growth. But in a region that has all too often been impacted by war, politics and poverty, there are many significant financial developments.
Most significant is the inauguration of the East African Legislative Assembly and the East African Court of Justice on 30 November. This is the legal executive of the East African Community, the co-operative organisation of Kenya, Tanzania and Uganda launched 25 years ago.
The organisation aims to establish a common market, monetary union, a customs union and ultimately a political federation of the East African states.
This step should strengthen the foundations of democracy and rule of law upon which the community is based. Additionally, it should stimulate greater political and economic stability.
The Kenyan shilling has remained stable against the dollar, buoyed by proceeds from exports of tea and coffee. This is likely to remain the case as buyers stock up to fulfill forward contracts.
Importers have also been shy, leading to reduced demand, further helping the currency exchange rate balance.
In typical Kenyan style, the oil companies have failed to reduce pump prices despite international price reductions. This has been blamed on the multinational oil firms for their failure to reduce depot prices.
The 91-day treasury bill rate has continued to decline steadily to 11.28% at the end of November 2001. This trend has been sustained by the Central Bank Amendment Act, which seeks to control how banks fix their interest rates and the issue of longer-term bonds by the government. These have reduced the pressure on the treasury caused by the previously popular short-term T-Bills.
Questions continue to be asked about the privatisation of Telkom Kenya. The investment mood is reflected in the under-subscription of leading Sugar producing company, Mumias Sugar, and investment company ICDC Investment.
This comes against the background of a severely depressed stock market, which is struggling to regain investor confidence. The NSE Share Index declined 15% in the year to February 2001 and has lost 25% in the three quarters this year.
This depressed state is likely to continue until clear indication emerges as to the direction the new leadership will take after the coming elections.
Uganda's inflation has continued to fall as food prices decline due to a marked increase in production. This has been enhanced by a reduction in the prices of a number of services and manufactured goods. The consumer price index shows the inflation rate at the end of November 2001 dropped to -5%, down from -2.6% at the end of October.
Although equity markets look uncertain after recent world events, the potential politico-economic stability offered by the East African Community bodes well for the future. With falling inflation and relatively stable currencies, East Africa has much to be positive about.
Stronger democratic and legal foundations.
Less disincentives for foreign investment.
Falling inflation and stable currency.
Severely depressed stock market.
Political uncertainty until after elections.
Privatisation of Telkom Kenya raises questions.
Follows McVey's resignation
Schroders and Aviva Investors
LightTower Partners, Seneca Partners and Unicorn AM
Integration with Money Dashboard
View from the front row