EAC member states are funding massive infrastructure projects by running huge deficits. It is likely Kenya, Uganda and Tanzania will launch Eurobonds to tap foreign debt markets. By MWAURA KIMANI Posted Sunday, June 12 2011 at 12:24 By most measures, finance ministers in East Africa expected 2011 to point their economies finally on takeoff paths. The rosy economic forecasts of early 2008 saw a period of uninterrupted growth, save for the rising crude oil prices brought about by the war in Iraq and a surging commodity boom that was driving up inflation. To many people, these were problems of prosperity. Then hell broke loose later that year, with the collapse of Bear Stearns and Lehman Brothers, starting what would be known as the Great Recession of 2008. East African economies sailed through safely after going on major spending sprees, with a little help from the International Monetary Fund and the World Bank. Now, though, the risk of a widespread recession in the region has been averted. This after all, was a problem that technocrats and politicians could easily throw money at. Last week, however, Maria Kiwanuka of Uganda, Uhuru Kenyatta of Kenya, Tanzanias Mustafa Mkulo, Rwandas John Rwangombwa and Burundis Nizigama Clotilde faced a different kind of force as they read their budget speeches. The popular uprisings in the Middle East that have brought several governments down have painted a strong metaphor in East Africa that masses of unemployed youths can draw inspiration from in the face of rising food and transport costs. With Mr Kenyatta and his rivals positioning themselves for the 2012 General Election, and Ugandas Yoweri Museveni embarking on an acrimonious second term, with the economy plagued by inflation, it is understandable that this years budget speeches devoted a significant amount of time spinning political stories. Tanzania, too, is devoting a lot of resources this year to improving funding for agriculture. East African economies are growing faster than ever before, and there are signs that a strong middle class is emerging. This is, however, happening alongside a parallel increase in lower class workers and unemployed youths. At the end of the day, the success of East Africas serving presidents is likely to be judged on one data point: job creation. Cushion the poor Kenya, for instance, is also spending $380 million on unique programmes to cushion the poor from economic shocks and to create employment opportunities. Half of this money will go to social protection projects which will involve paying monthly welfare stipends to thousands of senior citizens. The government will spend $3.5 million buying sanitary pads for poor girls so that they can stay in school. It is such pressures a surging unemployment rate, high cost of living and weakening currencies in EAC that forced governments to sharply raise spending for the coming financial year... but in so doing sending their frail economies into their biggest budget deficits ever. Statistics show that while governments across East Africa have been pumping billions of dollars into job creation initiatives, unemployment remains one of the biggest headache. Conservative estimates put Ugandas unemployment rate at 23 per cent, close to Tanzanias 24 per cent. With a population of 33 million, and one of the youngest populations in the world with a median age of only 15.2 years 1.5 million jobs need to be created every year to reduce joblessness. But Ugandas formal job market has been unable to keep pace with the ever-growing demand for employment. In Kampala, the youth unemployment rate is estimated at 32.2 per cent. Among university graduates, only 36 per cent are formally employed. According to the Uganda Bureau of Statistics 2010 population report, of the 400,000 Ugandans who enter the labour market each year, only about 80,000 are absorbed in formal employment. Uganda has one of the highest population growth rates 3.2 per cent per annum which translates to 1.5 million births every year. Kenyas latest economic survey indicates that 504,000 jobs were created in 2010, largely as a result of improved economic conditions coupled with increased access to affordable credit from the Women Enterprise and Youth Development Funds. Still, this is an increase of only 1,000 jobs from the previous year, with unemployed estimated at 40 per cent. Census data shows Kenyas population is growing by 1 million people annually. Rwandas working age population currently stands at 5.3 million, or half of the population, of which two per cent are public servants, leaving an unemployment rate of 8 per cent, the lowest in the region. On average, between 100,000 and 140,000 new jobs are created per year out of a target 200,000 new jobs a year by 2017. Infrastructure spending EAC member countries are allocating billions of dollars to infrastructure and social welfare projects. The infrastructure projects include roads, railways and new power plants and transmission lines. Tanzania will spend TSh2.78 trillion ($1.7b), up from TSh1.51 trillion ($952 million) last year, on upgrading roads, railway and ports, as well as investing in ICT infrastructure. Kenya will increase spending on roads by Ksh11 billion ($125.6 million) and nearly double its spending on energy infrastructure to Ksh65.7 billion ($773m). Rail transport upgrade will take up Ksh6 billion ($70m), which will be on the envisaged Thika-Nairobi Commuter Railway, set up the Mombasa Malaba standard gauge line and a new link to the Jomo Kenyatta International Airport (JKIA). Rwanda will spend Rwf 25.7 billion ($41.5million) to boost its ICT infrastructure Rwf75.2 billion ($124 million) on roads and the Kigali International Airport, and Rwf98.6 billion ($16.3 million) to expand electricity for an additional 65,000 households. Among the key allocations for infrastructure projects in Uganda are Ush1 trillion ($416 million) on road networks and USh850 billion ($354) on energy projects, including the 250 MW Bujagali hydropower project and the 600MW Karuma hydropower project. Among the key allocations to infrastructure projects in Uganda are Ush1 trillion (road networks) and Ush850 billion (energy projects), including the 250 MW Bujagali hydropower project and the 600MW Karuma hydropower plant. However, the big budgets seen by some analysts as ploys to gain political mileage will see governments turn to donors for help. But will the spending plans end the woes in East Africa? While this was supposed to be a stress-free year for East African leaders and finance chiefs, owing to the momentum the economies had gathered towards the end of 2010, recent street protests in Nairobi and Kampala over the rising cost of food and fuel are the biggest headache for the ruling elite. Governments globally have been taking measures to address surging inflation and unemployment which have stoked social unrest, especially in African countries such as Libya, Tunisia, Algeria, Egypt, Morocco and now Uganda by changing taxation regimes, introducing price controls and taking in more imports to boost supplies. Some analysts, led by those at PricewaterhouseCoopers (PwC), are cautiously optimistic that the spending plans, the taxation and policy proposals will solve the economic problems of East African countries. They, for example, see no major policy shifts in boosting businesses. Kampala expects external financing from development partners to amount to Ush2.9 trillion ($1.2 billion) 29 per cent of the budget. Most of the countries have nearly doubled their spending on infrastructure, as they open up their borders to regional trade. Related Stories Rwanda slashes fuel tax to contain inflation Uganda ups fiscal stance, keen on 7pc growth Tanzania to raise licence fees, levy extra taxes to help fund budget Uganda energy sector to get a jolt $521m budget boost Member states to boost EAC budget by 24pc Uganda hopes its new Youth Entrepreneurship Venture Capital Fund will help reduce biting unemployment. The government has allocated Ush25 billion ($10.4) as seed capital to reach youths starting or expanding their businesses. But even as the governments looked for domestic solutions to problems like poverty and high costs of living, they were also increasingly turning their eyes to the region for new opportunities. Various policies indicate that EAC member states are focusing on tax and regulatory changes that broaden their tax bases while moving towards regional harmonisation. This is a good sign for expanding regional trade which is fuelling growth, said experts at PWC.