EDITORIAL: East Africa economies showing signs of policy failure

The stockmarket is for good reason regarded as a mirror of the workings of the economy.

Listed companies from across East Africa have released half year results that suggest the improvements in the investment climate captured in official documents may not be cascading down to the factory floor where the test of the pudding is.

With the exception of a few companies that have sold the family silver or drastically cut costs, read shed jobs, returns in the first six months saw single-digit growth in profitability.

Growth sectors, such as the increasingly integrated banking and telecoms, were the stellar performers, adding to lingering suspicion that the regulatory environment is slanted in their favour at the expense of the rest of the economy.

Not surprisingly, inflation and high interest rates were among the disablers all companies mentioned in their pursuit for growth and profit.

The divid is that the service sector fears the slow growth rates will lead to less uptake of their solutions, while the concern of nuts-and-bolts sectors such as manufacturing and agriculture is that money will become so expensive that they may not be able to afford to borrow for operations, leave alone expansion.

This dichotomy points to a classic policy failure where unregulated free markets spread inequalities not just at the corporate level but also at the individual level. While market controls have been consigned to history on good aice, governments should exercise a measure of intervention in order to guard against income disparities that could in the long run breed social tensions.

Reading through the statements by company directors, one gets a feeling that the political climate is not right. Uncertainties in Burundi and South Sudan, as well as potentially hotly contested elections in Tanzania and Uganda, have constrained demand for some products while other companies are playing it safe by delaying investments they had budgeted for.

Getting the politics right so that elections are seen to yield smooth transitions rather than herald potential anarchy is one way of insulating businesses from these five-year cycles.

Another concern from the business fraternity is that the economic managers of the countries have got their priorities wrong. Corruption and nepotism come readily to mind but the main concern is that the economies are running on one wing — imports — with no regard to production for export.

The end result of this is a current account deficit that continues to weaken currencies, compounding inflation when shocks like weather mean less food output or crude oil prices rise.

In the case of the latter, the situation has become so acute that recent gains from lower oil prices were quickly wiped out by the weakening currencies.

This penchant for things foreign should be addressed not through restrictions as Nigeria has done but through subtle tweaks in taxation policies that discourage non-essential imports of the personal consumption type while encouraging value addition for exports from non-traditional sectors.