World Bank Document

RESTRICTED FILE COPY Report No. AF35 Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accurocy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized CURRENT ECONOMIC POSITION AND PROSPECTS OF KENYA, TANZANIA AND UGANDA Public Disclosure Authorized September 13, 1965 Public Disclosure Authorized Africa Department CURRENCY EQUIVALENTS 100 EA Cents = 1 EA Shilling = U.S. $0. 14 20 EA Shillings = E 1 Sterling = U. S. $2. 80 , 1 Million Sterling U. S. $2. 8 Million U.S. $1 = 7. 15 EA Shillings U.S. $1 million = l 357, 143 TABLE OF CONTENTS PAGE NEMORANDUM Introduction........ 1 Background....................... 1 Recent EconomicTrends........e.......,..... 2 Prospects for Exports and Total Output .... N... 4 Prospects for Investment, Savings and Capital Inflow ..... 7....7 Inplications for Balance of Payments, External Debt and Creditworthiness.................. 8 Annex I: The Economy of Kenya Production External Trade and Paynents Prospects Annex II: The Economy of Tanzania Production Domestic Finance Balance of Payments Prospects Annex III: The Economy of Uganda Production Balance of Payments Prospects Statistical Appendix ,I2CRAhDUiM OI THE ECONOTIC POSITION AIND PROSPECTS OF ;LNYi. - TAtZLiUIf. .AiD UG;.:DA Introduction 1. This memorandum presents a consolidated view of economic prospects in the three East African countries of Kenya, Tanzania and Uganda. It also updates the economic reports on the three countries issued in the course of the last eighteen months (Kenya - AF-26a of July 10, 1964; Tanzania - AF-13a of November 26, 1963; Uganda - AF-27a of November 5, 1964). Background 2. The twenty-six million people of East Africa have an average income of about $75, ranging from about $90 in Xenya to some $70 in Tanzania. The bulk of the labor force in each of the three countries is occupied in subsistence agriculture, which contributes about 26% to total GDP. Commercial agriculture, consisting mainly of four export crops, ac- counts for another 24d of GDP. The four main export crops are coffee, sisal, cotton and tea; together these account for between 65% and 70% of the export receipts of' the region. I4anufacturing, largely concentrated in Kenya, construction and public utilities have contributed about 10% of GDP over the past decade. Most industrial firms are-subsidiaries of over- seas enterprises. It the end of 1963, the total non-African population was 510,000 consisting of 430,000 Asians and 80,000 Europeans. 3. The three countries of East Africa became independent between 1961 and 1963. They are all members of the Commonwealth. Tanzania and Kenya have presidential forms of government based on single party systems. Uganda has a ministerial and multiparty form of government, led by the Prime I'iinister, with an indirectly elected President, who acts as Head of State. Each of the three countries has its own distinct political at- mosphere. Is. Tanzania (then Tanganyika) was the first of the three to become independent in December 1961. This was accomplished peacefully, under the leadership of President (then Prime Minister) Myerere, without any particular problems of racial or tribal strife. A series of events in early 1964, beginning with revolution on Zanzibar and ending with the union of Tanganyika and Zanzibar to form present-day Tanzania, led to internal problems, not without racial and ideological overtones, which have not yet been fully resolved. A complete union has not yet been ef- fected but many of the related political and administrative uncertainties appear to be clearing slowly. Uganda inherited a burden of unresolved constitutional and tribal problems when it became independent in October 1962. These complex problems, which unavoidab'y took precedence over financial and economic matters, have been handled effectively under the leadership of Prime Minister Obote. The government now appears to have -2- substantial popular support and has gone far toward improving the political climate of the country, which has recentl.r permitted noticeably greater concentration on problenms of development. Kenya became independent in December 1963. Pre-independence fears that Kenya would revert to intertribal warfare and racial into'erance have not materializedv Relations between tribes and races are increasingly cooperative. The Central Govermnent of the country under the leadershiP of President Kenyatta, has effectively limited the threat of tribal regionalism. The former opposition party, KADU, the party of regional autonomy based on tribal loyalties, has been absorbed by the single nationa.l party, KA21U, and the political situation has been remarkably stable, All three Easu African countries have consistentlyr followed an external policy that could be called "non-aligned". Each has established political trade and aid contacts with Eastern as well as Western nations. 5. East African Federation, the earnest hope of many East African nationalists before independence, has not been realized0 Arriving at independence at di.°ferent dates, adopting sometimes divergent economic policies and finding themselves in competition within a common market for the region's cconc.ic benefits, tho three countvries havc not so 1ar found- federation pran .cablc. -Zachco-artrj in turn, concen-ratcd on nation.:l advantage because fecdera_-, on could 7!0it bc t'c.d.cvc:(. Thni.r dif.farences indeed tend to thlreaten the coei-,ed exi:tcnce o1 t;ho iziporxant econom,ic 'and other institutions that slave served. the three countries in ccnrion for decades. The East African common market has underg.e:ne scrious strains, which were probably only temporarily relieved by the KamDala Trade Agreer.ent of 1964. The continued existence of t-he cormion market, at least for industrial products, is now in conslderab'e doubt. In June 1965, the three Govern- ments announced their decisions to establish separate central banks and to issue separate nationa'l currencies, replacing the East African Currency Board and the East African shilling. As yet, the developments in regard to currency and common market- have not seroiously affect_o. the East African Common Services Organization (EACSO), which encompasses the common railways and ports adaiinstration, the common posts and telecommunica- tions administration, and directs the collection of inlarnd revenues and customs duties. There remains a considerable fund of mutual good-will between the three countries which makes it unlikely that their association cannot continue in a mo-e modest frameworkc consistent with national aspirations and based on strong practical advantage in a number of specific instances. Recent Economic Trends 6. In 1963 and L964 real income growth in all three East African countries went up substantially because of increased export prices for coffee and sisal. With these commodities leading the way, average export prices rose by 10% annually over the two-year period, as contrasted with a steady decline averaging 3% annually, between 1954 and 1962. At the same time, the growth of export volume accelerated to an average rate of 9%as conmpared with one of under It% in the preceding four years. -3- The latter jump reflects in part the sharp recovery of Ugandan cotton exports, which were very low in 1962 because of bad growing weather. With variations in cotton exports smoothed out, export volume growth has been fairly steady at 5% for the past six years. This achievement is largely the result of the sizeable investmlents in export crops wade in the second half of the 1950fs,, which continued in recent years though on a somewhat reduced scale. 7. The volume of activity in the non-e.port monetary sector has ap- parently expanded at a significantly slower rate than export volures since 1957, mainly because of a decline in investm.ent. Growth in subsistence agriculture is also estimated to have been growing at a slower rate - perhaps around 3% annually or just about the same as population growth. Thus total growth of GDP in constant prices has probably averaged no more than 4% annually since 1958, and, variations in w^eather aside, this has been fairly steady throughout the period. Total real incomes, on the other hand, probably grew by only about 3% a year between 1958 and 1962, but with the improved terms of trade, have gone up by more than 6% annually in the past two years, 8. In the latter half of the 1950's; investnent reached high levels in all three countries, averaging over 690 million or 17% of GDP in 1955-57-. About two-thirds of this was in the private sector with commercial agriculture of inportarce in all territories, and with manufacturing and housing investment of particular importance in Kenya. Since that period, total investment dropped steadily relative to GDP, until 1963 when the ratio reached 10.5%. However, in 1964, there was a significant recovery to about 12%. 9. Public investment held fairly -steady between 1956 and 1961, at around ;34 million, then dropped to L29 million in 1963 but grew sharply in 1964 to 136 million as all three countries get new public development plans under way. In the private sector, investment fell from a peak of about h56 million in 1956-to a low of ;41 million in 1961, but has growrn steadily since, reaching &54 million in 1964. 10. The slackenirg off investment activity was reflected in a slow growth of imports between 1957-58 and 1963. In that period, the average growth was only 1% annually in volume terms and 2% in value. With the recovery of- investment in 1964., imports grew by 7%. Nevertheless, the sharp rise of exports in the past two years has led to a-decline in the sizeable current balance of payments deficit: averaging L21 milli.n in 1960-62, to virtually nil in 1963 and 1964.

Load more