Tanzania and Ethiopia Fastest Growing Economies in East Africa in 2020 and 2021

Multinational professional services firm EY has just released its Africa Attractiveness Report 2021 that examines the attractiveness of Africa as an investment destination.

The findings confirm that Africa, along with the rest of the world, was significantly impacted by the COVID-19 pandemic in 2020 and witnessed one of its worst economic recessions in 50 years, heightened by weak health care systems and infrastructure.

However, Africa’s overall GDP contracted by 2.4% in 2020, less than the 3.6% contraction in global GDP, 6.7% in the Eurozone, and 4.3% in the Americas.

And few countries were able to avoid the pandemic’s impact. Across Africa, East Africa was most robust, with Tanzania and Ethiopia growing fastest in 2020.

Despite it being the fastest-growing hub on the continent, East Africa’s policy bottlenecks and rising political tensions (in Ethiopia and Tanzania) have contributed to the relative decline in its share of FDI.

Anchor economy Kenya saw a decline in FDI inflows as the Government introduced new ownership rules to protect local industries during the COVID-19 pandemic.

Outlook for 2021

The outlook for 2021 looks mixed, with government recovery measures varying by country.

EY believes that private sector involvement, slowly recovering trade, rising commodity and crude prices, rebounding tourism and a strong agricultural output will determine Africa’s recovery prospects.

Africa is projected to grow by 4.6% in 2021, then averaging 4% up to 2025. Côte d’Ivoire, Morocco, and Kenya are expected to rebound more strongly in 2021.

But mounting debt, high unemployment, slow vaccination rollouts, political unrest in certain regions, lack of basic infrastructure and rising poverty levels pose risks to this outlook.

Although GDP growth in Ethiopia and Tanzania slowed in 2020, it remained in positive territory and East Africa’s GDP should pick up in 2021.