Which is the largest Economy in East Africa?
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| The high flyers: Kenya and Ethiopia |
Which is the largest economy in East Africa? Interesting question. There is two running neck on neck-Ethiopia and Kenya. The GDP of both countries has crossed the US$86 billion mark and, at the current rates of growth, will cross the $90
billion Mark in the next 12 to 18 months… well, 10 to 16 months.
When we wrote about the epic rivalry between the two economies, we did not see the reason for the see-saw on the top perch. Now we can confidently report it. It is just a small gap in the GDP accounting periods!
Is Ethiopia’s the largest economy in East Africa or is it Kenya’s? A casual glance at GDP data could place Ethiopia at the top or even place Kenya at the top. You won’t be wrong depending on the time period. But look again: Which is the economic powerhouse in East Africa?
There is a six-month hiatus in the GDP accounting periods of the two countries. Kenya accounts its GDP during a Calendar year (January-December) while Ethiopia accounts during its financial year (July to June). This creates a six-month gap between the accounting Periods which leaves one wondering who occupies the top perch? Well.. it keeps changing hands: One moment its Ethiopia, the next moment it is Kenya.
GDP at a given period is a still picture of the level of wealth at that point. It can, therefore, be appropriate for comparison only in seeing whether there was a change in the intervening period or not. As a still picture, it is good at telling us whether the person was fat or lean at the time the picture was taken. But cannot tell us whether one person was better than the other if the pictures were taken six months apart.
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The pacesetters: Energy and
transport infrastructure |
Consequently, the size of the two largest economies in East Africa can only be compared if qualified by the accounting period. For instance 2018 or financial year 2018/2019.
This finding in no way rejects the truth that both economies are the leaders in East Africa with Ethiopia posting the fastest growth rate estimated at 8.5 per cent in the current financial year. However, a fast growth rate does not necessarily mean a large economy. It just means a fast growth rate!
For instance, Tanzania has posted consistently fast growth rates, way ahead of Kenya in the past two decades or so, yet Kenya’s GDP is 1.6 times larger than Tanzania’s. In other words, Tanzania’s GDP is just 64 per cent of Kenya’s which is estimated at US$86 billion compared to Tanzania’s $55 billion.
Ethiopia’s GDP will stand at $87 billion by June 30th, 2019 going by the projected growth rate of 8.5 per cent. Kenya’s GDP was $86 billion at the end of December 2018. It is not clear how large was Ethiopia’s GDP at that point. It could have been larger or lower by a few million dollars. At the end of June 2019, Kenya will be looking at the second quarter growth rate of 2019. Will they be at the same level or will Kenya be ahead of Ethiopia? That is how the see-saw emerges.
By that time, Kenya could even be ahead of Ethiopia depending on the robustness of economic activity in the next six months. But Ethiopia will have overtaken Kenya’s GDP based on December 2018 data. This is why the difference in GDP between the two is in hundreds of millions of dollars- not exceeding $500 million. In fact, in 2016 when Ethiopia is said to have overtaken Kenya’s GDP, the gap was just about $50million. And in 2017 when Kenya’s GDP was adjusted by the Statistics Office, it led Ethiopia’s by just over US$ 400 million. This is just about one month’s GDP growth, just a few paces ahead in the language of athletics. Not big enough to determine the winner unless they have crossed the tape. In terms of economic domination, both countries appear to be in the early stages of a marathon. Perhaps with just pace setters chasing each other while the real competitors are just warming up. The pacesetter, in this case, is a massive investment in enablers- energy and transport infrastructure.
Back to economics. According to current estimates, Ethiopia’s GDP will be ahead of Kenya’s by $1.1 billion at the end of June 2019.
If the same projections are employed, Kenya’s GDP will have added another US$2.66 billion by June placing it ahead of Ethiopia by $1.66 billion, yet Ethiopia will just be at the beginning of the financial year 2019/2020. But because Kenya’s still picture will be six months away from the update, Ethiopia will be ahead.
Nevertheless, as in athletics where the two countries dominate, the dominance of the two in East Africa economics is good news for the region. The medals, in this case, is economic well-being in the region for large economies tend to drag the smaller neighbours along with them: If they thrive, the neighbours thrive. If they shrink, the neighbours also shrink.
To illustrate, 40 per cent of African Economies grew by more than 5 per cent last year, which would ideally put Africa’s GDP above 5 per cent, yet Africa’s GDP growth is estimated at 3.6 per cent
, dragged down by weak growth in Nigeria and South Africa, Africa’s largest economies.
The winner in this rivalry will be determined by the real heroes of the race, expansion of the economic sphere through robust economic activity taking advantage of the availability of the enablers. Energy and transport infrastructure have been identified as bottlenecks that frustrate economic progress anywhere- not just East Africa.
Industrialization is likely to determine the race. So who wins? Watch this space!
Kenya and Ethiopia in epic Economic Rivalry
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| Ethiopian Railways Electric SGR train |
The Rivalry between Ethiopia and Kenya in international athletics is also being played in regional economics. The countries are now the dominant economic powerhouses in East Africa. And they keep see-sawing regarding the leader. One moment Ethiopia leads the next year, Kenya leads. As in international athletics, the rivalry makes for economic good news in the region.
The two countries with a combined population of more than 140 million control 64 percent of the regions GDP estimated at $251.54 billion in 2017 and they are the main drivers of robust GDP growth in the region.
Kenya’s GDP $81.2 billion at the end of 2017 following the revision of economic data for 2017 from US$75 billion to US$ 81.2 billion. Ethiopia’s GDP was $80.6 billion in 2017.
This means that as at the end of 2017, Kenya’s economy was larger than Ethiopia’s by $600 million. Both economies are one and a half times larger than Tanzania’s GDP which, according to Trading Economics, quoting World Bank Data, stood at $52.05 billion. Uganda’s GDP stood at US$28.59 billion in 2017 while Rwanda GDP was $9.14 billion.
Analysts estimate that Kenya’s GDP last year rose by more than six percent which would catapult GDP as at the end of last year to $86 billion. Ethiopia’s GDP is also expected to reach the same level, only slightly higher than Kenya’s, making her the leading economy in the region last year.
The two countries were rated by a British accounting institute as dynamic economies which are driving the region’s GDP. And given the growing stability in two countries, their contribution to economic growth in the region is expected to deepen.
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| Kenya's diesel-powered SGR train |
Kenya is the only middle-Income country in the region with a GDP per capita standing at more than US$1870 compared to Ethiopia’s $885. But the dynamism of her economy and that of Ethiopia are likely to see the top perch change hands frequently. Their rivalry in economic domination is likely to mimic their rivalry in the international athletic events.
The drivers of this dynamism are economic transformation driven by investment
in infrastructure which has seen a major influx in investments industry. China is the leading investor in both countries. Both countries have invested aggressively in infrastructure especially, electricity generation and transport infrastructure. Both are currently enjoying self-sufficiency in power supply, eliminating the chronic power shortages of the past.
This how the rivalry defines itself: Ethiopia was the first of the blocks on the Standard Gauge Railway with a 700Km line connecting her with the Port of Djibouti. However, Kenya hit the rails with her own SGR just a few months later connecting Mombasa Port, the largest Port in East Africa with Nairobi. The line is now being extended by 120 Km to Naivasha.
And now, Kenya, whose electricity capacity has risen to 2.7 GWn compared to Ethiopia's 2.5 G, is set to electrify its SGR and the adjoining economic zones. The Kenya Electricity Transmission Corporation, KETRACo has applied to NEMA, the environment authority, for approvals to electrify the line.
The commissioning of the SGR generated plenty of controversy about the cost difference. However, both are not similar, they are different Classification, with vastly different load capacities and were build on different terrain to different standards. The Kenya line is way superior to the Ethiopian one.
Ethiopia has invested in a light Railway while Kenya is still considering the proposal.
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| A Geothermal station In Kenya |
In power generation, Ethiopia is the runaway leader with 6GW Grand Renaissance Dam, GERD, whose Construction is still ongoing. This is the largest hydro dam in Africa. The Gilgel Gibe3 dam with a capacity of 1870 MW, which was commissioned in 2015, is way ahead of all hydro dams in East Africa combined. Ethiopia, with an abundance of Hydro sources, is the leader here while Kenya leads in Wind and geothermal generation.
The 310MW and Lake Turkana Wind power project is the largest wind farm in Africa while Kenya is also the leader in the continent in geothermal generation. It’s commissioning in October last year helped Kenya leapfrog Ethiopia in wind power generated electricity by more than 100 MW. So far Kenya generates 700 MW from geothermal sources, making her the leader in Africa. She is also the leader in East Africa in wind power generation. Kenya’s estimated potential in both geothermal and Wind Power is 10 GW and 3GW respectively.
In Air transport, Ethiopian Airlines is the leader in Africa, leaving Kenya in the third position after South African Airways. It is the only profitable airline in Africa and boasts of a fleet of 105 aircraft compared to Kenya Airways’ 37. Kenya Airways is still recovering from financial headwinds into flew into, four years ago.
Like in international athletics where both have a penchant for long distances, the two countries have a penchant for mega- infrastructure projects. While Ethiopia has GERD, the US$4.8 billion hydro-dam, Kenya has the $23 billion LAPSSET, the transport corridor that incorporates a seaport, Standard Gauge Railway, a highway, and an oil Pipeline. It also involves the development of three Resort cities in Isiolo, Lamu, and Turkana. But it is in manufacturing where the competition will determine who leads. And both are working hard towards setting up industrial zones to attract the manufacturing sector both local and foreign.
Whomever the leader shall turn out to be, the two countries are gearing to become the economic hub of East Africa- and the largest market for her neighbours.