East Africa economies set to benefit from energy prospects

JOHANNESBURG (Reuters) - Booming oil and gas investment in East Africa will sustain robust economic growth in Uganda and Tanzania, despite the corruption and power failures blighting the nations, a Reuters poll found on Thursday.

Tanzania, the region's no.2 economy, could see its economy expand around 7.0 percent this year from an estimated 6.6 percent in 2012, before growing another 7.1 percent next year, the survey showed.

"We are forecasting Tanzania to continue to outperform the region in terms of economic growth in 2013 on the back of continued investment in the energy sector and infrastructure," said Mark Bohlund, economist at IHS Global Insight.

Still, like neighbouring Uganda and Kenya, Tanzania frequently suffers from blackouts, and the International Monetary Fund (IMF) has warned it needs to limit power outages if it wants to maintain buoyant growth.

Uganda, the third biggest economic power in the region, could see growth of 5.6 percent this year from 4.2 percent last year, with a further acceleration to 6.5 percent in 2014.

That's a fairly similar outlook to Kenya, East Africa's largest economy according to a Reuters poll in November.

Analysts do not expect power outages in Tanzania and the cloud of corruption hanging over Uganda's government to deter further investment into East Africa's untapped energy deposits.

For Uganda, major western donors including Britain, its biggest bilateral source of aid, suspended their financial support to the country toward the end of last year after allegations of $13 million in stolen aid.

"In any case, continued exploration and investment in the natural resource sector should more than offset the effect of the aid freeze," said Shilan Shah, Africa analyst at Capital economics.

The government is hopeful that foreign donors will restore aid, which makes up a quarter of the nation's budget, after it pledged to refund stolen and embezzled funds.

A drought in 2011 prompted an inflation surge through East Africa, but better rains and tighter monetary policy stance by the central banks are subduing inflation, albeit slowly.

Ugandan inflation should ease from an average 14.6 percent last year to around 6.8 percent in 2013, and reaching 7.9 percent next year.

The Central Bank of Uganda left its benchmark lending rate at 12 percent at the beginning of this month - ending a run of growth-boosting cuts that began last June when the base rate was 21 percent.

Tanzanian inflation should also fall into single digits this year after averaging an estimated 16 percent in 2012. The poll showed it easing to 9.6 percent this year, and then to 7.8 percent next year.

"We are forecasting inflationary pressures to be relatively contained in 2013 on the back of sluggish economic activity," added Bohlund from IHS Global Insight.

"But (they) remain vulnerable to increasing food and energy prices as well as a weaker shilling."

Source: http://news.yahoo.com/east-africa-economies-set-benefit-energy-prospects-132318098--finance.html

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