TRACKING PROGRESS IN MACRO- ECONOMIC AND SOCIAL DEVELOPMENT IN EASTERN AFRICA

ECA/SRO-EA/ICE/2011/08 UNITED NATIONS Original: English ECONOMIC COMMISSION FOR AFRICA Sub Regional Office for Eastern Africa 08 15 th Meeting of the Intergovernmental Committee of Experts (ICE) Theme: Towards a Sustainable Tourism Industry Development in Eastern Africa Djibouti, Republic of Djibouti 21-24 February 2011 TRACKING PROGRESS IN MACRO- ECONOMIC AND SOCIAL DEVELOPMENT IN EASTERN AFRICA 1 P.O. Box 4654, Kigali, Rwanda. Tel: +250 252 586548/49 Fax: +250 252 586546 - E-mail : easrdc@uneca.org

List of Acronyms and Abbreviations ART: Antiretroviral therapy AU : African Union BPFA: CARMMA: Beijing Platform for Action Campaign on Accelerated Reduction of Maternal Mortality in Africa DAC : Development Assistance Committee DRC : Democratic Republic of Congo EAC : East Africa Community ECA : United Nations Economic Commission for Africa EU : European Union FDI : Foreign Direct Investment GDP : Gross Domestic Product GNI : Gross National Income HDI : Human Development Indicator HDR: Human Development Report ICT : Information and Communication Technology IGAD: Inter Governmental Authority on Development IMF : International Monetary Fund IMR: Infant mortality rate LDC : Least Developed Country MDG : MDRI : Millennium Development Goals Multilateral Debt Relief Initiative 2

MMR: Maternal mortality ratio ODA : Official Development Assistance OECD : Organization for Economic Cooperation and Development REC : Regional Economic Community S.D. : Standard Deviation SSA : Sub Saharan Africa TTCI: U5MR: UPE: UNCTAD: UNDESA: UNWTO: Travel and tourism competitive index Under 5 Mortality Rate Universal primary education United Nations Conference on Trade and Development United Nations Department of Economic and Social Affairs United Nations World Tourism Organization WB : World Bank WEO : World Economic Outlook WIPS : WGP: WSIS: World Investment Prospects Survey World gross product World Summit on the Information Society 3

CONTENTS A. Introduction... 6 B. The recent world economic developments and Eastern Africa Sub-regional economies in 2010... 8 C. Regional economic developments: Macroeconomic and social developments in the Sub region... 10 i. Macroeconomic developments... 10 a. Real GDP Growth performance... 10 Sources of growth in EA... 12 (i) Sector s contribution... 12 (ii) Remittances, FDI and ODA... 13 (iii) Commodity prices... 14 (iv) Regional implications of world demand developments... 15 b. Inflation... 16 c. Foreign Exchange markets in the region... 18 d. Current account... 19 e. Fiscal balance and Government Expenditures... 20 ii. Recent trends in social developments in EA... 21 a. Achievement of the MDGs... 21 b. MDGs and Social Development Nexus... 28 D. Prospects for 2011 and challenges... 30 1. Prospects for 2011... 30 a. Integration agenda is advancing well.... 30 b. The business environment is improving in the sub region... 31 c. A growing tourism region with strong potential... 31 d. Governance in the sub region: The role of the state in economic transformation... 35 2. Recurrent challenges to sustainable growth in EA... 35 i. Potential resources and missed opportunities... 35 ii. Dependence on primary commodities and ODA... 35 iii. Crisis and volatility of international financial architecture... 36 iv. Reforms of the international financial architecture... 36 v. The world is experiencing crucial changes... 38 vi. Conflicts and poor governance... 39 4

vii. Rapid population growth and persistent poverty... 39 E. Conclusions and policy implications... 42 References... 44 Annexes... 47 LIST OF FIGURES Figure 1 Recent GDP Growth Rates... 10 Figure 2: GDP Growth in East Africa, Africa and the World (% annual growth rate change)... 11 Figure 3 Trends in commodity prices.... 15 Figure 4 Inflation rates in Eastern Africa... 17 Figure 5: Global Inflation rates... 17 Figure 6 National Currencies Vs $U.S. Exchange Rates... 18 Figure 7 Current account balance in the sub region... 19 Figure 8. The East Africa current account balance in the world... 20 Figure 9 Fiscal/Budget Balance (%GDP).... 20 Figure 10 Government Revenues (% of GDP).... 21 Figure 11 Mean Population Growth in the Region (2006-2010)... 40 Figure 12. Population Density in the Region (2010)... 40 LIST OF TABLES AND ANNEXES Table 1 Selected indicators and income category... 12 Table 2 EA key Destinations Tourist Arrivals and Receipts 2008-2009... 32 Table 3 TTCI Ranking of Select African Countries... 33 Annex 1. Table 4 GDP growth (per cent annual growth rate change)... 47 Annex 2. Table 5 Inflation rate in Eastern Africa (average annual growth rate)... 48 5

A. Introduction After more than a year from the beginning of the financial crisis, the world economic stability is under turmoil and the pace of recovery is slowing down due to strong concerns about the debt-sustainability and contagion in some OECD countries, especially in Europe. Pessimistic scenario of doubt and uncertainty remains and forecasts for world growth product using reviewed data predict performances of 3.1 percent in 2011 and 3.5 in 2012, given the recent positive developments (UNDESA, 2010) 1. These scores are still below the 3.6 estimated for 2010, before the crisis era and following fragile and uncertain recovery. Structural weaknesses in developed countries contrast with increasing strength in most of developing and transition economies. They have contributed to more than half the world economy since the third quarter of 2009 under the leadership of Asian and Latin American emerging countries, especially China, India and Brazil through the South - South linkages. In this context, the achievements are straightforward. However, it is crucial to investigate if this equilibrium will hold for 2011 in case developed economies experience slow growth- since they determine world demand, official development assistance and capital flows. On the African continent, the global economic and financial crisis hampered sustained growth efforts. The growth in 2009 was 2.6 per cent, down from a mean level of 6 per cent in the period 2006-8. African economies are expected to recover quickly and achieve 5.0 % and 5.5 % mean growth level respectively in 2010 and 2011(OECD, 2010 and UNDESA, 2010) thanks to increased of world demand following high world trade growth and commodity prices. Advantages and potential opportunities: Africa has proven resistance to the crisis relative to the other continents. Its low integration to international markets, mixed with sound macroeconomic policies prevented most of the African countries from deep recession and negative spillovers. However, the rebound is projected to be uneven with strong disparities across sectors, regions and countries. The exports sector declined subsequent to the world demand while the imports continued increasing. 1 IMF forecasts 1.7 per cent in 2011 and 2.3 per cent in 2012. 6

The East African sub region is expected to follow the footsteps of the continent and recover quickly and reach 5.2 and 5.7 per cent growth in 2011 and 2012 respectively. For more than five years, it has been the best performing sub region while the South remained lagging far behind in the recovery process and growth performance. African Economic Outlook forecasts North and Western Africa to grow moderately at 5 and 4 per cent respectively in the period 2010/11. In light of this short background, the 2011 edition report will attempt to track macroeconomic and social developments in Eastern Africa Sub region with special focus on tourism sector development, governance and the transformation of state in Africa. Finally, it delineates prospects for coming years, new challenges and ways to address the performance failures. 7

B. The recent world economic developments and Eastern Africa Sub regional economies in 2010 In 2010, growth in the world remained sluggish and the prospects for recovery deemed. The world recovery is expected to remain weak and fragile until 2012. The world gross product (WGP) is expected to reach 3.1 and 3.5 per cent for 2011 and 2012 respectively; a level below the expected 3.6 per cent for 2010. Despite this persistent uncertainty in the developed world, developing and transition economies were able to boost demand under the leadership of the strong emerging economies like China, Brazil, India, etc. In Africa, the GDP jumped surprisingly from 2.3 per cent in 2009 to an unexpected 4.7 per cent despite turbulent times in the recovery from global economic and financial crisis. Africa benefitted particularly from buoyant international commodity prices and the South South cooperation. The recovery from global downturn started in the second quarter of 2009. After a slowdown of 2.6 per cent (down from 5.5 per cent in 2008) growth rate subsequent to the general crisis, Sub Saharan Africa rebounded quickly and reached 5.0 per cent in 2010. This general trend was registered in East Africa with a mean growth performance of 3.6 per cent in 2009, down from 4.5 per cent the year before and 4.1 per cent in 2010. The region is expected to keep the momentum for the next five years. However, it will not be able to record the 7 per cent growth required to achieve the MDGs in 2015. East Africa sustained high level economic performance in 2010 following the impressive growth of strong economies like Ethiopia, Tanzania, Uganda and Rwanda, among others. Unfortunately, some economies are suffering from regional and / or internal crisis with negative impacts on growth and stability. The illustrative cases are Madagascar, Eritrea and Somalia 2, countries which record sluggish growth rates. 2 Madagascar is expected to achieve a negative growth rate for 2010 (-2 per cent) while any data is available for Somalia. 8

On average, these good growth performances come from dynamic services and industrial activity, mining sector and strong contribution from agriculture. The strongest sectors were telecommunications (Kenya), infrastructure development (Ethiopia, Rwanda, Uganda, etc.) and a robust mining sector (DRC and Tanzania). While a strong rebound took firmly place in most of the regional countries, most of them are still struggling to reach the 2008 growth performance. The successful cases were Kenya, Seychelles, Comoros and Eritrea. In Kenya, political turmoil was harmful to economic activity and the country was still striving to address the 2007 electoral protest despite its record of impressive growth figures. Comoros and Eritrea have improved their political stability, leading to improved growth performance inherited from conflicting uncertainty. The pace of recovery in the region is strongly affected by the world environment. If external factors are exerting an impulse to world recovery, a financial environment characterized by doubt and uncertainty spreading over the developed economies is decreasing the potential for a strong recovery. 9

C. Regional economic developments: Macroeconomic and social developments in the Sub region i. Macroeconomic developments a. Real GDP Growth performance Annex 1. Table 4Figure 1 below shows good economic growth rates of Eastern African economies. After three years of double digit growth rate, Ethiopia receded in 2009 but its performance remains above the regional mean thanks to its construction, energy and mining sector. Other countries which recorded outstanding performances in 2010 were Tanzania, Uganda and DRC. The regional average reached the pre-crisis level (4.1 per cent in 2010 against 4.5 per cent in 2008) and forecasts keep the growth momentum steady up to 2014, one year before the world MDGs agenda. However, this good score will remain below the 7 per cent required to achieve the goal. Figure 1 Recent GDP Growth Rates 10

Figure 2 compares growth rates in East Africa, SSA and the world. Compared to the world growth, SSA is performing well, far above the mean growth thanks to the catch up speed of emerging and developing economies. Relative to SSA, EA has not been performing as well despite its best ranking on the sub regional level for more than half a decade. However, the trend is expected to reverse starting 2012. Figure 2: GDP Growth in East Africa, Africa and the World (% annual growth rate change) Source: IMF(2010), WEO (2010) and UNDESA (2010) These good economic performances for EA sub region hide disappointing human development stance relative to growth achievement. Growth should generate corresponding level of decent employment and poverty reduction through promotion of labor-intensive activities, access to productive assets by the poor (through land reform, access to credit, etc.), education and health services. Otherwise, the growth will no more be sustainable if it is not equitable. Therefore, it remains important to know how to cement and reorient this growth potential. One should explore what the driving forces are and analyze how to sustain this equilibrium in the long run. 11

SOURCES OF GROWTH IN EA (i) SECTOR S CONTRIBUTION The primary sector has been again the main driving force of the growth in the region. In sub Saharan Africa, the mean contribution of agriculture in GDP was 57.42 per cent in 2009. In the Eastern Sub region,, it contributed for more than 40 per cent of the GDP (WDI, 2010) 3 in a number of countries: The agriculture sector value added to GDP is 45.18 per cent in Comoros, 42.91 in DRC, 50, 68 in Ethiopia and 45.31 in Tanzania. The particular cases are Seychelles where it contributed only for 2.01 per cent; Eritrea (14.39 per cent), Madagascar (23.9 per cent) and Uganda (24.68 per cent). An increased activity was registered in the services sector in the sub region. To mention few examples among others, it contributed for 63.36, 62.08 and 58.5 per cent respectively in Eritrea, Kenya thanks to sustained expansion in telecommunications sector that boosted economic upturn and Madagascar. A particular case is worth to be highlighted: Seychelles. All the Member states of the East African Sub region are ranked in two categories according to their level of development: Middle and low income countries, with slightly different macroeconomic characteristics. Table 1 Selected indicators and income category GDP Consumer prices Current account balances Income class\ Year 2009 2010 2011 2009 2010 2011 2009 2010 2011 Middle 1.7 3.3 3.6 7.1 5.5 5.7 4.1 4.4 5.8 Low 4.5 4.9 6.0 12.6 6.2 6.0 6.8 7.4 8.3 Source: World Economic Outlook: Recovery, Risk, and Rebalancing 3 The last data base available for this aggregate goes back to the year 2009. 12

Middle income group in EA comprises Seychelles only; all other countries being in the low income class. This particular case, namely the Seychelles, a geographically small sized country with very low population, sustained a modernized tourism sector which contributed for 78.28 per cent despite the failing agriculture sector. The industrial sector is lagging behind despite strong dynamism in Uganda and Rwanda, a rising mining output and continued robust investment in infrastructure development in Ethiopia and Tanzania. On average, it counted for only 30.14 in SSA in 2009. This score is over the performances in EA where the most performing industrial sectors counted for 25.78 in Uganda, 24.04 in DRC and 22.24 per cent in Eritrea. All the other member states are between 10 and 20 per cent of the GDP. On overall, the impulse of accelerated economic growth was driven mainly by dynamic agricultural sector, increased investment in infrastructure development, rising foreign direct investment in the mining industry and to a less extent in the oil sector. Both domestic and international context contributed to the noticeable rebound of economic performance in Eastern Africa. On domestic level, the majority of Eastern African countries managed better their macroeconomic and fiscal policy. This boosted domestic demand and alleviated the effects of the financial crisis. On international level, the higher prices of primary commodities mixed with increased international demand sustained recovery of growth. (ii) REMITTANCES, FDI AND ODA For a number of developing countries, particularly on the African continent, remittances are a major contributor of resource flows and a big component of Current account. In 2009, world remittances declined 6.7 per cent relative to the previous year and were estimated at 414 billion USD. This trend was reversed a bit in 2010 and is expected to remain in 2011 with 6.3 per cent growth up from 5.7 per cent. The score for Africa is expected to remain stable in the period 2010-11, at 5 per cent. In EA, the share of remittances in GDP was almost the same in 2009 relative to 2008 (2.28 per cent against 2.23) and the trend was not clear cut. 13

While some of the countries kept receiving important amounts of remittances (increase of 95 in Seychelles and 20 per cent in Rwanda and Tanzania), others suffered from a deep decline in the transfers from abroad (39 per cent in Ethiopia and 9 per cent in Comoros). On overall, the average mean of remittances amount was expected to decline very slowly in 2010. Despite this overall relative stability in remittances, FDI, an important source of foreign capital in Africa, have decreased slightly. World FDI dropped about 37 per cent from the 2009 level while it decreased by 24 per cent in developing and transition countries (UNCTAD, 2010b). In Africa, estimations of 2010 show an increase of Official development assistance (ODA) around 4 per cent in 2010 in real terms. Unfortunately, it remained short relative to the targets and commitments made by the international donor community. In EA, the size of ODA was affected by financial crisis. The mean decrease of ODA in current American prices was 53.27 per cent in 2009 relative to the previous year. Two countries, namely Comoros and Seychelles registered a decrease of 106.74 and 103.15 per cent respectively. Five more countries (Djibouti, Eritrea, Kenya, Madagascar and Somalia) experienced a decline of 70 per cent or more in the same period 4 (UNECA, 2010). In nominal terms, the general trend of grants decreased slightly in Eastern African Member States, except DRC, Ethiopia and Kenya. In DRC, the dramatic rebound of more than seven times the amount registered in 2008 should be explained by internal changes in local exchange rate vis-à-vis American dollar. Elsewhere in the region, the size of decline was noticeable, especially in Madagascar, Tanzania and Rwanda. (iii) COMMODITY PRICES Commodity exports, agricultural, food, oil, mineral and metals constitute the most important components of the regional exports. The Democratic Republic of Congo and Tanzania are the major mineral producers in the region, while the rest of the regional economies mainly export agricultural commodities. In 2010, commodity prices rebounded from the lows of 2008/2009. Figure 3 shows how all commodities rebounded slightly in 2009 and kept momentum in 2010. 4 The relatively well performing countries were DRC (38.2 per cent) and Tanzania (42.2 per cent). All the other countries, the magnitude of decrease was 47 per cent or more. 14

The rise in commodity prices was an important factor in regional economic growth (Figure 3) and was fueled by the global economic recovery from the 2008 financial crisis. Most of the regional economies experienced higher growth rates in 2010 relative to 2009 with exceptions being Uganda and Ethiopia. The increase in commodity prices was a double edged sword for countries in the region, the increase in price of metals, food and agricultural commodities implied that countries in the region would earn more revenues from higher price of exports. However the increase in the price of oil meant that they would have to pay more for oil imports. This would probably have an effect on the distribution of growth within the regional economies. Sectors of the economy that relied heavily on oil imports like manufacturing, tourism and transportation would face higher production costs from the rise in oil prices and probably experience slower growth rates. Figure 3 Trends in commodity prices. Source: UNCTAD, 2010 (iv) REGIONAL IMPLICATIONS OF WORLD DEMAND DEVELOPMENTS Future market conditions present a challenge for economic growth in the region, because much of the economic growth is driven by exports. The sovereign debt problem in Europe is considered a big risk to the global economy in 2011. 15

Austerity measures in the Euro zone and the USA aimed at reducing budget deficits and government debt would have a negative effect on global commodity prices and incomes. Britain, Ireland, Greece, and likely Portugal and Spain in the near future have all initiated austerity measures to reduce the level of government debt and deficits. The USA is debating ways of reducing the government deficit and debt. UN-DESA Global Policy Model simulations of 2010 estimate the negative impact on income, trade, and commodity and oil prices to be in the range of 12 18 per cent. Inflation in China is another risk to global economic recovery. China s efforts to reduce inflation are considered a risk to the global economy. If tight monetary policies lead to decreased growth in China, commodity and oil prices will negatively be affected. In short, regional economies are resilient to international developments. If developed countries and nowadays big emerging economies particularly China and India are dealing with unstable domestic conditions, the world demand would decrease. Similarly, ODA, FDI and remittances would follow the same trend. b. Inflation Inflation rates in EA continued the downward trend in 2010 except in some cases like Djibouti where it increased and Madagascar where it remained stable. On average, it was less than half the 2009 level, more precisely 8.1 per cent in 2010, down from 18.4 per cent in 2009. The outstanding performances were registered by good performing economies like Ethiopia, Seychelles, Uganda, Tanzania, among others. Two particular cases are worthy to be highlighted: DRC and Eritrea still had two digits inflation in 2010 (26.2 and 20.5 per cent respectively) despite their high improvement from the year 2009. 16

Figure 4 Inflation rates in Eastern Africa Source: Calculations from authors Table 5 shows that although the inflation exhibits an overall decreasing trend in the sub-region, it remains relatively high if compared to the continental level (8 against 7.5 per cent). Figure 5: Global Inflation rates Source: Calculations from authors 17

c. Foreign Exchange markets in the region The national currencies have different purchasing power parities as indicated by the official exchange rates. Based on the law of one price, the concept of purchasing power parity underlies the notion that identical goods must have only one price in an efficient market. This can be applied to compare the values of the national currencies based on their exchange rates with the U.S. dollar. The exchange rates of some national currencies relative to the U.S. dollar ( Figure 6) show that the Kenyan shilling and Seychelles currency had the strongest currencies in the region in 2010. The Ethiopian Birr, the Kenyan shilling and the Seychelles currency did not fluctuate too much against the US dollar in 2010 while the Ugandan shilling and Madagascar currency lost value against the US dollar. The varying values of national currencies have implications for intraregional trade; for example goods produced in Uganda were relatively cheaper than goods produced in Kenya or Rwanda which made them more competitive in the regional market. Figure 6 National Currencies Vs $U.S. Exchange Rates Source: IMF, WEO (2010), 18

d. Current account The current account profile (Figure 7) shows that countries are net importers of goods and services. Eritrea, Madagascar and Seychelles are projected to decrease the current account deficit in 2011, while other countries in the region are projected to increase theirs. The biggest fluctuation is expected in Burundi, DRC, Djibouti, Ethiopia, Rwanda and Uganda. Figure 7 Current account balance in the sub region Source: IMF (2010), WEO (2010) and UNDESA (2010). Compared to the continent and the Sub Saharan region, EA deficit is larger than the two ( 19

Figure 8) with a big gap. The trend shows that the region will maintain a big deficit (12%) in 2011. The rebound started in 2008 was quickly exhausted. 20

Figure 8. The East Africa current account balance in the world Source: IMF (2010), WEO (2010) and UNDESA (2010). A challenge and concern facing African countries is dealing with Southern partners like China, India, etc. The key Southern partners have more activities and engagements with large, resource-rich and politically strategic countries in the region while their presence in small poor countries is still limited. e. Fiscal balance and Government Expenditures Fiscal balances (Figure 9) show that countries in the region faced generalized budget deficits in 2010 with the exception of Comoros and Rwanda. There were minimal changes in national government revenues (Figure 10) between 2009 and 2010. Figure 9 Fiscal/Budget Balance (%GDP). Source: IMF, 2010 21

Prospects for 2011 indicate that most national governments are projected to face budget deficits (Figure 9) with the exception of Seychelles. Figure 10 Government Revenues (% of GDP). Source IMF, 2010 Financing government deficits in a global environment of austerity measures may prove a challenge to governments in the region. It will require both fiscal discipline and austerity measures to cut down usual staggering public spending. ii. Recent trends in social developments in EA a. Achievement of the MDGs Over the years, East African countries have made gains in addressing social issues. We can mention examples of illiteracy, gender equality, among others. However, social development issues have largely taken a back seat to economic development issues. 22

With the advent of the Millennium Development Goals (MDGs) which provided a basket framework for addressing socio-economic issues, momentum was regained. The gains made from addressing the MDGs should be exploited to reinforce the nexus between economic growth, social development, gender equality and for the sub-region, youth development. The 2010 Human Development Report (HDR) notes that out of 135 countries sampled, only 3 countries, all of which are in Africa, have a lower HDI 5 today than in 1970. For this sub-region, it is worth noting that the picture presents a mix of both progress and regression, with Ethiopia being cited as among the top performers. With the current round of MDGs ending in five years, it is important to assess progress and come up with strategies to register meaningful collective progress, especially within the context of a regionally integrating environment. The 2010 UN Summit on the MDGs adopted a global action plan to achieve the eight goals by the 2015 target date, and announced commitments on women and children. The sub-region should take a leaf from the Summit and launch regional programmes to ensure acceleration towards attainment of the MDGs. The view that Africa will not meet the MDGs should not be taken for lack of action in addressing the Goals, as countries have made remarkable strides in several areas. In Eastern Africa, progress made in addressing the MDGs depicts positive trends in addressing some of the indicators, while with others, challenges still persist. Following is a summation of East African country performance per goal. MDG1 Eradicate extreme poverty and hunger There is consensus that poverty is decreasing across the board. Countries have registered commendable efforts. According to the 2009 UN MDG report, in 1990, the baseline year for the MDGs, 57% of the population of Africa was living in extreme poverty, earning less than $1.25 a day in purchasing power parities and 2005 prices. By 2005, the poverty rate had dropped to 51 percent. Projections suggest that the extreme poverty rate in Africa has continued to drop to about 46 percent in 2008 6. 5 HDI is a composite measure of development which combines information on health, life expectancy, schooling and income on a simple composite measure (Human Development Report, 2010) 6 http://www.undp.org/africa/poverty.shtml 23

A rate of 12 per cent progress was achieved in 5 years and, building on the momentum, almost the same size (11per cent) was reached in only 3 years; a kind of multiplier effect increasing over time. The Continental picture depicted by the Global Monitoring Report of the World Bank shows a decline in extreme poverty and hunger, which is expected to reach 36% in 2015. This could be attributed to tireless measures by governments to ensure economic growth and ensure poverty reduction. Uganda, Kenya and Tanzania raised public expenditure on infrastructure by 20-30 percent to enhance economic growth (ADB, 2010). The 2010 MDG report for Africa cites Ethiopia and the DRC among countries which have registered marked growth rate of GDP per person employed and have increased labour productivity from a very low level in 1992 by some 15 to 38 percentage points by 2008 7. The sub-region also registered low performance for the same indicator, with Comoros, Eritrea and Rwanda. This is equally the subregion with the highest employment-to-population ratio. MDG2 Achieve universal primary education There has been overall improvement regarding this goal, and this is consistent with the trend since the inception of MDGs. The financial crisis does not seem to have hampered efforts to achieve this goal. Countries have registered significant increase in net enrolment including Burundi, Djibouti, Ethiopia, Kenya, Rwanda and Uganda. This could be attributed to abolition of school fees in some countries. It should be noted that other countries were already doing well and therefore, managed to register minimal results from their 2005 scores. In the past 5 years, Burundi and Comoros have abolished school fees at the primary level while Eritrea, which registered a regress in net enrolment relative to 2005 8, stepped up efforts in functional literacy which benefited more women than men 9. Djibouti has not performed well on this indicator, with an estimated 59 percent gap in net enrolment. The positive progress in net enrolment rate is not matched with the same on primary completion, neither does this positive trend extend to secondary and tertiary levels. 7 Assessing progress in Africa toward the Millennium Development Goals, 2010 8 Ibid 9 Eritrea Beijing +15 report 24

The 2010 Human Development Report (HDR) recognises this achievement, and further notes that there is room for improvement in secondary and higher education 10. Policy solutions should be sought to address these challenges. The other challenge is that of ensuring that content matches the demands of the job market, which would reduce unemployment and underemployment of many graduates. However, there are countries which continue to perform well including Ethiopia and Tanzania. Most countries have expended efforts to address illiteracy. Top performers in the region include Comoros, Uganda, Eritrea and Tanzania. Several countries have put measures in place to support and develop gender studies and research. This contributes to gender equality. MDG3 Promote gender equality and empower women According to national reports submitted to the ECA for monitoring implementation of the Beijing Platform for Action (BPFA) in 2009, countries have shown progress in addressing gender inequality and put measures in place to address women s empowerment. Countries have continued to register progress in closing the gender gaps in primary education. The MDG 2010 report asserts that gender parity in primary education is likely to be achieved. However it decreases at secondary level, while tertiary education registers the widest gap 11. This does not reduce from the fact that gender parity is difficult to measure as some countries fail to report on this indicator. Eritrea has slightly regressed, while Tanzania has maintained its 1991-2007 parity levels, it has even reduced gender parity at tertiary level. Seychelles has achieved gender parity in primary education while in Rwanda has more girls than boys enrolled in primary schools. The projection is that East Africa has demonstrated overall progress in achieving gender parity and that most countries will achieve gender parity in primary education by 2015. Regarding the share of women in employment, Ethiopia is the best performer in the region at 47 percent. Uganda, Rwanda and Tanzania have also shown an improvement. Rwanda is still the country with the highest proportion (56 percent) of seats held by women in national parliaments. Uganda, Burundi and Tanzania have reached the CEDAW and Beijing Platform for Action targets of 30 percent. Comoros, DRC and Kenya registered female participation below 10 percent in 2009. The subregion has registered progress from the 2005 figures and is second to Southern Africa in performance. The regional average however masks slow progress in some countries. 10 UNDP, Human Development Report, 2010 11 Assessing progress in Africa toward the Millennium Development Goals, 2010 25

MDG4 Reduce child mortality Countries have made efforts to address the under 5 Mortality Rate (U5MR). Eritrea and Seychelles are on track to reduce the U5MR by two thirds. Ethiopia and Rwanda have decreased U5MR by over 50 percentage points or more from very high levels. Tanzania, Uganda and Comoros continue to fight U5MR steadily. However the current rate of progress will be insufficient to reach the target. The DRC and Somalia have not registered any change while in Kenya, U5MR increased by 22 percent. The preceding scenario is the same for infant mortality rate (IMR) where countries that have shown progress in U5MR have equally registered the same for IMR. Despite overall progress in the sub-region, East Africa is unlikely to meet the U5MR target. Ethiopia and DRC have increased measles immunization coverage by 22 and 21 percentage points between 2000 and 2008. Almost all countries in the sub-region, with the exception of Somalia are doing well and have surpassed the regional average of 73 percent (WHO, 2010). MDG5 Improve maternal health In sub-saharan Africa (SSA), East Africa is the sub-region with the lowest maternal mortality ratio (MMR). Maternal mortality has been high in Ethiopia and the DRC, though in the former, it has fallen and is on a downward trend. Ethiopia still has to increase a proportion of births attended by skilled health personnel as it is the only country with less than 10% of skilled attendants. HIV and AIDS have contributed to the increase in MMR in some countries. Contraceptive prevalence rate for married people is low in the region. However, with the African Union s Campaign on Accelerated Reduction of Maternal Mortality in Africa (CARMMA), there has been commitment at the highest levels. The 2010 Summit of AU Heads of State and Government which took place in Kampala, Uganda in 2010 underscores the severity of the problem throughout the Continent. Several efforts have been expended, with stakeholders in the sub-region converging around this issue with various interventions. Civil society organisations also lended a hand, with FEMNET organising a caravan which traversed different East African countries, and landing in Kampala in time for the Summit. 26

²Antenatal coverage, which is expressed by at least one visit and at least 4 visits, is still off target. Somalia, Eritrea and Ethiopia fall below the regional average of 73 percent, while Rwanda, Uganda, Kenya, Burundi, Comoros, DRC and Tanzania fall above the regional average 12. Tanzania provides pregnant women and children under five with treated mosquito nets, in addition to free maternal and child health services. Despite concerted efforts, it does not seem likely that the sub-region will meet the 2015 target of achieving universal access to reproductive health. MDG6 Combat HIV, AIDS, malaria and other major diseases The health sector across SSA continues to suffer as a result of insufficient funding. The commitment made by Governments to allocate at least 15 percent of national budgets to health is yet to come to fruition. For most countries, there is a heavy reliance on external funding for the health sector, and as in education in some countries, this is the area where aid is directed to fight against HIV and AIDS. Trends seem to suggest that there is a plateau and a decline as far as the HIV and AIDS are concerned. This is attributed largely to extended availability of antiretroviral therapy (ART) in most countries. New infection levels have declined, largely due to access to treatment. Information dissemination has also contributed. The 2010 UNAIDS report shows that the spread of the pandemic has been halted and that the spread of HIV is reversing. National reports submitted to UNAIDS in 2010 on the UNGASS Monitoring the Declaration of Commitment on HIV/AIDS also show that a lot of countries have made great strides 13. According to UNAIDS Regional Support Team for Eastern and Southern Africa, twenty-two of the most affected countries in sub-saharan Africa have reduced new HIV infections by more than 25%. This is due to policy responses that have been instituted at national level. While most countries continue to benefit from bilateral partners and the global fund, it is imperative to source domestic funding for implementation of the existing national strategies to curb the spread of HIV. Although countries have scaled up efforts on HIV/AIDS, malaria still remains a challenge. Rwanda recently launched in November 2010, a 5 year national action plan (2010-2014) tagged the agenda for accelerated action for women and girls in the response to HIV. 12 World Health Statistics, WHO, 2010 13 UNAIDS, Global Report on the global AIDS Epidemic 2010 27

Since the Government of Tanzania declared the epidemic a national disaster in 1999, efforts have been intensive at all levels to mobilize society against this threat. Numerous efforts beared tangible results: prevalence of HIV, which was over 20% in the mid-1990s, has dropped to 13% in 2005, probably as a result of regional programmes and activities. MDG7 Ensure environmental sustainability Measuring this goal is a challenge for Africa. It does not possess the requisite technology and few countries report on some of the indicators. It is inarguable that climate change continues to affect all and may have disastrous consequences for the poor. Focus on the environment is imperative in addressing poverty reduction. The NEPAD environment initiative aimed at promoting sustainable development encompasses several of the environmental goals. Progress is slow regarding the environmental indicators. Deforestation continues. Different countries have registered progress in reaching the target to integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Carbon dioxide emissions per capita have continued to increase in countries like Seychelles 14. Access to improved drinking water has improved in Comoros and Djibouti. Ethiopia, Somalia, the DRC have not performed well in this indicator, especially in rural areas. Sanitation facilities can enhance human health in many regards and Djibouti is the only country with a redress from the 1990 level. According to the 2010 MDG report, the cost of dealing with the adverse consequences of climate change is likely to hamper progress on the MDGs in Africa 15. MDG8 Develop a global partnership for development It has been evident since the inception of the MDGs that developing countries cannot deliver on the development commitments without the involvement of international partners. The Paris Declaration and the Accra Agenda for Action call for national decisions in how development aid will be used. The G20 has also ensured the placement of the MDGs in its business agenda. 14 Ibid 15 Assessing progress in Africa toward the Millennium Development Goals, 2010 28

The MDGs 2010 report notes that this partnership has remained strong, even at the peak of the crises of 2008-2009, with net official development assistance (ODA) to Africa rising in 2008 despite the global financial and economic crises. This however is still below the commitment of 0.7 percent of GNI by OECD countries. Compared to other developing regions, Africa remains the largest recipient of OECD/DAC. African countries have benefited from the HIPC initiative and the MDRI. Aid for Trade has not received significant attention. The Economic Partnership Agreements (EPAs) as they are currently formulated, risk undermining inter and intraregional trade. Information and communication technology (ICT) is another area where governments have made progress. ICTs have been made available in many countries to meet the World Summit on the Information Society (WSIS) targets. Rwanda is considered to be a pioneer in this sector. Its ICT policy is based on the premise that ICT is an engine of economic growth 16. While mobile telephony continues to grow, East Africa still has the lowest number of cellular subscribers per 100 population. Seychelles remains the country with most cellular subscribers and internet users per population, while Eritrea and Ethiopia have least cellular subscribers. Internet penetration is also low in Ethiopia, as it is in the DRC. The private sector has been instrumental in ensuring success in most countries and partnership with them should be forged and strengthened. b. MDGs and Social Development Nexus The inextricable link between the MDGs and social development calls for a more concerted effort in addressing the MDGs. There is evidence to show that countries have continued to make progress in the social sector as they address the MDGs. For example, countries which have instituted measures to address health MDGs have seen an improvement in life expectancy and overall health conditions. Countries have continued to register divergent progress with inequality gaps growing rather than narrowing. As the 2010 HDR notes, economic growth and human development do not always coincide. This is the reason why countries which have registered high economic growth have not necessarily transformed human lives for the better. They need a revision of how economic gains trickle down to the households. This gap is becoming more evident as societies are becoming more unequal. The more the poor are making strides out of poverty, the richer are becoming. 16 www.rwandagateway.com 29

A case for MDG based planning? The success of the Tanzanian MKUKUTA program and Ethiopia s PASDEP which are national strategies for poverty reduction and sustainable development, makes a case for strengthening MDG based development if countries are to attain the Goals. MKUKUTA spread out responsibility for addressing MDGs to lower levels of Government, thus ensuring easy monitoring and local ownership. Ethiopia, like Rwanda, has also devolved power to local levels. Gender responsive budgeting that Tanzania adopted and the auditing initiatives incorporating gender-sensitive economic analysis in budgetary plans is an effort worth scrutinising. The region, like the Continent, is confronted with several challenges towards addressing development priorities. National competing demands result in some sectors getting a far less share of the national budget than others. It is imperative that Governments continue to seek innovative measures to address national challenges, especially within the context of an integrating region. They need to do all possible to guard the gains made, revise their policy toward the private sector, especially in the area of technology and skills transfers and adopt vigilant measures to close gaps in order to reach the target. Countries have continued to register progress across the MDGs and seek new ways to address national challenges. National efforts in ensuring universal primary education (UPE), for example in the DRC and Uganda demonstrate that it is possible to attain certain of the MDGs. Ground-breaking measures have been adopted by countries to address certain of the MDGs e.g. Ethiopia instituted a safety net program targeting food-insecure and poor households to increase enrolment rates; Kenya has legislation with property and inheritance rights of HIV/AIDS orphans; Tanzania has recognised women s access to land and avails credit to develop the land; and Eritrea has established strong partnership to address health issues. Seychelles, the country which has performed well in terms of poverty alleviation, recognises the protection of the poor in its constitution. It is important that the sub-region finds innovative strategies to address economic growth alongside social issues. The 2010 HDR notes their finding of the lack of a significant correlation between economic growth and improvements in health and education. 30

This is the case in Eastern Africa where countries have registered economic growth over the years, with minimum resultant progress in HDI levels. It is worth noting that assessment on the MDGs progress is usually marred by lack of data at national level. This calls for strengthening of national statistical systems to ensure availability of data consistent with internal requirements. Many countries in EA, like in SSA in general, are on good track but would seemingly not achieve the Millennium Development Goals by the 2015 deadline. The scores vary from country to country, and target to target but the general trend is aforementioned. Even those who should rarely be achieved according to the broad summary above, additional development challenges remain pending like: Extreme poverty, insufficient aid, poor governance and capital flight, educational needs and brain drain, ageing population and adverse population trends, food insecurity and climate change, chronic diseases, etc. D. Prospects for 2011 and challenges 1. PROSPECTS FOR 2011 a. INTEGRATION AGENDA IS ADVANCING WELL. EAC integration agenda is progressing well. Negotiations for the monetary union are advancing well and the process should be concluded by 2015 (instead of 2012). IGAD is on good track for the Minimum Integration Plan. The two bottlenecks are the spaghetti bowl scheme and the different speeds of regional integration in the region. While IGAD is thinking about implementation of a Free trade area, the EAC member states are well advanced on Monetary Union negotiations. COMESA plans to launch External Common Tariff by 2012. The new COMESA-SADC-EAC tripartite initiative has set up a task force with clear objectives, commitments and timeline. The framework testifies the strong commitment from the regional leaders. CEPGL s relaunching process is advancing well. It has finalized a strategic plan for 2010-2014 and is expected to adopt it soon. Summing up, the integration process in EA sub region is advancing well, even if it is at different speeds. It is overlapping and there is a need to address coordination and harmonization problems. 31

b. THE BUSINESS ENVIRONMENT IS IMPROVING IN THE SUB REGION. Doing business in the region shows that the number of regulations fostering business activity outweighed those inhibiting it in 2010. The willingness and efforts to improve the business environment in the region were increasingly noticeable in the region even if the priorities varied from one country to another. Single border controls fostered business between Rwanda and Uganda, Rwanda Burundi and Rwanda DRC. Electronic data systems were initiated by customs authorities in Kenya, Tanzania and Uganda. Harmonization of customs practices has speeded up in the EAC member states under the Customs Management Act. Harmonization and opening of the banking systems and payments continued. For a total of 183 countries in the report, three eastern African are in the first 100 performers. In 2010, Rwanda improved the ease of doing business and rose from 70 th to 58 th position in 2011 ranking (Doing Business, 2011). Unfortunately, the two following best performers in the sub region, namely Seychelles and Kenya dropped from 92 nd and 94 th places respectively to 95 th and 98 th. These good figures hide disappointing performances in EA region. Eritrea and Burundi are ranked 180 th and 181 st respectively for the last two years while DRC is ranked 179 th in 2011, down from 175 th in 2010 and Comoros 159 th. c. A GROWING TOURISM REGION WITH STRONG POTENTIAL The tourism industry has emerged as key global economic sector accounting for 5% of the total economic activity, generating US$ 3 billion per day and employing 6-7% of total workforce (UNWTO, 2010). As a result, more and more countries, both in developed and developing worlds are turning to tourism to address their respective developmental challenges. The majority of African countries, particularly, those in Sub-Sahara Africa (SSA), for instance, are now embracing tourism as a potential tool for economic development and poverty alleviation. This is mainly due to the industry s potential for foreign exchange earnings, job creation, revenue generation in terms taxation for governments, both forward and backward linkages through the multiplier effect, and the failure of traditional sectors such as agriculture to bring about meaningful socio-economic development. East Africa is a leading tourist destination in SSA, according to the United Nations World Tourism Organization (UNWTO) statistics. It signifies great potential for tourism growth in terms of tourist 32

arrivals and receipts (see Table 2 below). The tourism industry is currently one of the leading foreign exchange earners in the majority of East African countries such as Seychelles, Kenya, Rwanda, Uganda, Tanzania and Ethiopia, and contributes significantly to the Gross Domestic Product (GDP) of these countries. For example, the tourism industry in Seychelles generates about 60% of the total foreign exchange earnings, contributes about 13% of GDP and employs 30% of the total workforce. Owing, therefore to its potential to bring about socio-economic development, governments in East Africa are now prioritizing the industry. In Kenya and Rwanda, for instance, tourism has been identified as a key sector to facilitate the achievement of their respective strategic visions for development. Table 2 EA key Destinations Tourist Arrivals and Receipts 2008-2009 Arrivals ( 000) Receipts (US$ millions) 2008 2009 2008 2009 Ethiopia 330-377 - Kenya 1 141-762 807 Rwanda 731 699 186 174 Seychelles 159 158 258 - Tanzania 750-1 289 1 260 Uganda 844 817 498 667 Source: UNWTO Highlights, 2010 The tourism industry in East Africa, however, faces a number of challenges including: heavy reliance on traditional nature-based tourism products such as, safari and coastal products; emphasis on western tourist markets; the foreign orientation of the industry especially in terms resource ownership and control; and destination competitiveness. 33