Tanzania is rapidly closing its economic gap with Kenya


By Neville Otuki | Business Daily, Kenya September 25, 2017

Kenya’s status as East Africa’s economic powerhouse is at stake as Tanzania races closely behind, with a higher growth rate that is increasingly narrowing the gap between the two economies.

Tanzania has added impetus to its economic firepower, growing by an impressive seven per cent over the past five years compared to Kenya’s growth of just above five per cent.

The latest International Monetary Fund (IMF) data shows that Tanzania’s economy expanded seven times in the past 20 years while Kenya’s output grew five times since 1997 with the trend expected in coming years, weakening Nairobi’s future dominance.

The same data shows that there were times in the past when Kenya’s economy would be as many as four times as large as that of Uganda.

However, such a big gap has not been reached in many years and is has remained mostly below three times.

Rapid Growth

In Tanzania, it is sustained rapid growth that has helped the country reduce the gap in the size of its economy compared to her neighbour.

It’s such growth that saw neighbouring Ethiopia overtake Kenya’s economy for the first time in 2015, a situation that experts say might happen again with Tanzania if nothing changes.

Kenya’s economy size was more than double that of Tanzania 20 years ago but the gap has now narrowed to less than half.

The IMF data shows that Kenya’s annual economic output, also known as gross domestic product (GDP), stood at $13.7 billion (Sh1.4 trillion) in 1997 while that of her neighbour was $6.4 billion (Sh659 billion).

This meant Kenya had an economy 114 per cent larger than Dar es Salaam, or more than double, back then.

But last year, Kenya’s economy was only 46 per cent larger than Dar, meaning Tanzania has fast been bridging the gap over the period.

The IMF data shows that Kenya’s GDP has grown five times in the past twenty years to Sh7 trillion ($68.9 billion) last year and is expected to touch $75 billion this year.

Comparatively, Tanzania’s economy has in the period expanded seven times to a GDP size of $47.1 billion, or Sh4.8 trillion last year.

It’s this break-neck growth speed that has sparked debate on whether Tanzania, with a bigger population and land mass compared to Kenya, could occupy the region’s top economic position it once held.

Kenya has been the top dog in East Africa since 1987, ahead of its neighbours Tanzania, Uganda and Rwanda in that order, attracting dozens of multinationals and global deals.

Swapped Positions

Before 1987, Tanzania and Kenya swapped the pole position with Tanzania having been the biggest economy from 1982 to 1984, the IMF data shows.

A year later, Nairobi raced past it but Dar es Salaam went ahead and reclaimed the slot in 1986 only for Kenya to dislodge it permanently from 1987 to date.

Experts said that Tanzania’s newly found bullish stance on business and development, as it moves deeper into a market economy away from socialism that is entrenched in the country’s historic culture, has helped spark the growth.

Economist David Ndii has posited that Tanzania could overtake Kenya by 2021 if it continues at the pace of GDP growth it held in early 2016 when he wrote.

“Tanzania is on course to overtake Kenya’s economy in size — in five years at most — and if the current growth differential is maintained, Tanzania’s economy will be at 20 per cent larger than ours in a decade,” he wrote early last year.

Projection

However, IMF forecast data shows that by 2022, Kenya’s economy will be stand at $113 billion against Tanzania’s $78 billion, hinting that catching up with Kenya will take a longer time, if at all it will.

X N Iraki, an economics lecturer at the University of Nairobi, said that Dar is, however, very unlikely to leap past Nairobi in the foreseeable future based on the private sectors of the two economies.

Compared to Tanzania, Kenya’s private sector is far much more vibrant and has remained the country’s key engine of growth, said Dr Iraki, citing hundreds of Kenyan businesses with operations in Dar.

Whereas in both countries, growth has partly been fuelled by government-funded infrastructure projects, the private sector in Nairobi continue to do the heavy lifting.

But Kenya’s prolonged election period, drought and shelving of plans for early oil exports have dampened prospects, with the economy expected to record the slowest growth in five years.

East Africa’s economic powerhouse has always suffered dips in growth every five years when the country holds its General Election.

On the other hand, Dar has over the years enjoyed relatively smooth political transitions, handing it consistent growth.

Tanzania has also emerged as a key producer of gold and diamond and recently struck huge deposits of natural gas and helium, piling on its economic muscle.

The second largest economy in East Africa has been expanding its sea port, enabling it to import some of the goods it previously had to source from Kenya.

It’s also gearing up to construct a multi-billion dollar standard gauge railway line and a crude oil pipeline in partnership with oil-rich Uganda.

Dar, under President John Magufuli, snatched the pipeline deal from Kenya following earlier agreements between Nairobi and Kampala.

Transport System

Tanzania’s capital city last year launched the region’s first bus rapid transit (BRT) system, which has eased public transport.

Phase one of the 21-kilometre Dar rapid transit system, which has five terminals, 27 stations, seven feeder stations and three connector stations, opened last year and has 140 buses that serve thousands daily.

A World Bank cities report released in February ranked Dar es Salaam’s real estate ahead of Nairobi

The report put the economic value of Dar’s real estate at Sh1.2 trillion ($12 billion) ahead of Nairobi’s Sh927 billion ($9 billion) – a Sh273 billion gap.

Also trailing Kenya’s economy by far is Uganda, Rwanda and Burundi, the other full members of the East African Community (EAC).

The IMF data shows that Uganda had an output of Sh$26.1 billion last year, a third of Kenya’s economy.

Kenya’s economy is eight times larger than Rwanda’s $8.4 billion (Sh865 billion). For strive-torn Burundi, the gap with Kenya is so huge that the small country would fit into the latter’s economy over 2,000 times.

On the trading front, Tanzania has recently been cutting Kenyan orders. The two countries have recently been locked in a trade spat that saw the duo exchange import bans on several commodities such as cooking gas, wheat and milk products.

Export Drivers

Official data shows that Uganda and Tanzania this year ceased to be Kenya’s export drivers after relinquishing the position to Pakistan and the United States that have upped their appetite for Kenyan goods.

Pakistan has this year overtaken Uganda as the largest buyer of Kenyan goods, while the United States is fast bridging the gap between it and Kampala on Kenya’s export market table.

Exports to Pakistan jumped 90.8 per cent to Sh24.8 billion in the year to May from Sh13 billion in a similar period last year, marking the fastest growth.

Shipments to the US grew 20 per cent to Sh18.5 billion in the period, the Kenya National Bureau of Statistics data shows.

On the flipside, exports to Uganda remained unchanged at Sh21.9 billion in the year to May while Tanzania cut back its purchases from Kenya 34 per cent to Sh8.2 billion.

Uganda has in the past years been the driver of Kenya’s exports while Tanzania was once the second largest buyer of goods from Nairobi, before narrowing its orders.

Uganda has in the past 10 years been the largest buyer of Kenyan supplies, making it a key economic partner for Nairobi.

But the clout is now waning with the slide on Kenya’s export destination table.

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