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The East African : May 12th 2014
The EastAfrican 40 BUSINESS MAY 10-16,2014 Chinese demand slowing down, domestic deficits ≥ising — whe≥e is Af≥ica headed? COMMENTARY ANTOINETTE M SAYEH “I do worry about the global shifts that are taking place and what they mean for the region.” that the region’s economy is in good health. Growth is set to pick up to five per cent, compared with 4.9 per cent last year. My view is that this growth O momentum will continue over the medium-term if countries rise to new challenges and manage their economies as dexterously as they have over the past decade or so. Apart from good macroeconomic policies in the region, the growth has been underpinned by investment in infrastructure, mining, and strong agricultural output — high demand for commodities and low interest rates have played a major supporting role. That said, I do worry about the global shifts that are taking place and what they mean for the region. Unless countries navigate the new environment adroitly, the current growth momentum will slow down considerably. So what are the downside risks to the otherwise favourable outlook? First, growth in emerging markets could prove less supportive. If growth in these economies slows down considerably, then export demand will decline, especially for some base metals such as copper and iron ore. Countries such as the Democratic Republic of Congo, Liberia and Zambia would be particularly hard hit. nce again, the latest review of growth prospects for sub-Saharan Africa shows At the same time, tighter financial conditions in China could reduce the appetite of Chinese companies for investing abroad. China has been a major source of foreign direct investment and infrastructure financing for Africa. Second, as advanced econo- mies unwind their highly accommodative monetary policies, global financial conditions will become tighter and countries in sub-Saharan Africa could experience a hike in interest rates and a slowdown, or even a reversal, of private capital flows. But the risks to the growth momentum are not all external. Security conditions remain difficult in some countries. The conflicts in the Central African Republic and South Sudan are exacting a heavy human and economic toll. At the same time, they are having negative spillover effects for the neighbouring countries in terms of lower trade flows and higher security outlays. I also worry about high fiscal deficits in some countries. Four years after the global crisis, fiscal policy has remained on an expansionary footing despite a recovery in both growth and revenue. The issue of rising fiscal im- balances is worth dwelling on. A number of economic observers have asked the question: Are countries heading back to the bad old days of rapid debt accumulation that may need to The conflicts in the Central African Republic and South Sudan are exacting a heavy human and economic toll.” useful spending in health and education, and rebuild decaying public infrastructure. Over the long run, higher investment in human capital and infrastructure should raise potential growth sufficiently to pay off the debt, assuming that the quality of spending is high. So deficits of the order of two–three per cent of GDP are probably not a bad thing, and will not lead to rising debt burdens given that GDP growth rates are much higher. And it is true that overall levels are not particularly high as of now, and they have been quite stable over the past five years. Overall, public debt-toGDP ratios have continued to decline, from a regional average of 37 per cent in 2004–08 to some 33 per cent in 2010–13. Debt burdens have been kept in check by relatively high GDP growth rates. Of Concern I am concerned about those countries where fiscal policy has continued to weaken and debt levels have risen rapidly. Particularly vulnerable are countries that depend heavily on portfolio flows to finance their deficits. Sub-Saharan Africa was able to recover quickly from the effects of the global crisis because most countries started from an already strong position. They lowered their deficits and slashed their debt-to-GDP ratios in the preceding years. Countries should aim to in- The South Sudan conflict has affected neighbouring countries. Picture: AFP be forgiven down the line? Are these fears well grounded? One concern now is that, five years on, many countries continue to show relatively high deficits despite the fact that growth and revenue have recovered rapidly. Between 2010 and 2013, the average fiscal deficit amounts to some three per cent of GDP, a deterioration of five percentage points compared with pre-crisis levels. So, what explains the lack of adjustment despite the recovery in growth and revenue? Why has spending kept on growing so fast? In many cases, increased spending is the result of boosts to public investment and propoor spending. The Heavily Indebted Poor Countries Initiative was designed precisely to give countries the necessary fiscal space to undertake socially crease their resilience to shocks, notably by boosting their revenue base and avoiding excessive spending growth. Countries with large fiscal deficits and high or rapidly rising debt levels should intensify efforts to bring public finances on a more sustainable path. Fast-growing countries should take advantage of the growth momentum to strengthen their fiscal balances. And all countries should strive to improve the quality and efficiency of public spending. Antoinette Sayeh is the director of African department of the International Monetary Fund Kenya ta≥gets two million tou≥ists with $2.4m ≥ecove≥y p≥oject $1.1 billion By SCOLA KAMAU Special Correspondent KENYA’S TREASURY has allocated Ksh200 million ($2.4 million) to tourism recovery programmes beginning this month, in a bid to boost tourist numbers. A Tourism Recovery Committee has been set up to oversee the programme. According to the Kenya Tourist Board (KTB), part of the money will be invested in local and global media campaigns. “We are planning visits to countries that saw a significant reduction in tourist numbers last year, as well as to emerging markets,” said Muriithi Ndegwa, KTB managing director. KTB targets two million tourists by the end of 2014, from traditional, emerging and domestic markets, including East Africa. According to the latest government data, tourist numbers and revenues for the year ended December 2013 fell by 15 per cent and 2.13 per cent respectively. The slump is blamed on insecurity, the impact of VAT, a decline in product and service quality and the high cost of doing business in Kenya, compared with other competitors like South Africa, Uganda, Tanzania and Rwanda. Tourism receipts in 2013 declined for the second year running, posting a 2.13 per cent drop to Ksh93.97 billion ($1.1 billion) from Ksh96.02 billion ($1.13 billion) in 2012. The total number of international and domestic tourists dipped by 15.8 per cent to 1.5 million from 1.78 million in 2012. travel to Kenya. Consequently, potential tourists choose alternative destinations offering similar products,” said Phyllis Kandie Cabinet Secretary for East AfricanAffairs, Commerce and Tourism. Tourism receipts in 2013 declined for the second year running, posting a 2.13pc drop to Ksh93.97 billion “Several incidents of insecurity in Nairobi and Mombasa have dented the country’s image and a number of tourist source markets have at various times issued advisories against non-essential Decline Tourist numbers from the United Kingdom fell the most by 19.5 per cent to 149,699. Fewer visitors also arrived from the USA, Italy, India and Germany. Kenya has also been losing its comparative advantage in the safari product segment due to declining wildlife populations and haphazard development of accommodation facilities in major conservation areas such as the Maasai Mara. The poaching of rhinos and elephants has brought about adverse publicity, and the survival of the species threatens the country’s ranking as a leading safari destination. Uganda, Rwanda and Kenya have come up with a joint marketing strategy to promote the single tourist visa, launched early this year, and attract more tourists. The quality of tourism services has been falling below the international standards mainly due to inadequate regulation. This applies to all subsectors like hotels, restaurants, tour operations and travel agencies, according to Ms Kandie.
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