Kampala, Uganda - The economic outlook for the East African region looks less grim in 2012 than in 2011 according to economist's projections.
There was as economic slowdown in 2011 right across the region due to inflationary pressures and rising high fuel prices.
IMF projections for the region in 2011 have reduced regional growth by about 4% due to these pressures.
In the region, Rwanda remained at the forefront of thriving economic stability despite the economic hardships that hit Burundi, Tanzania, Kenya and Uganda leading to double digit inflation and depreciation of the local currencies on the dollar.
As the 2011 curtain is drawn and 2012 is ushered in, East African Business Week takes a look at how some critical dynamics of the economy performed and projections for 2012.
Inflation
Uganda, Kenya, Tanzania and Burundi succumbed to double digit inflation for most of 2011 unlike Rwanda.
Analysts project that inflation will most likely ease in the second quarter of 2012.
In 2011 the double digit inflation was driven by drought that affected some food producing districts especially for countries like Uganda and Kenya.
When the rains came on the other hand, they were heavy and unpredictable making it hard for farmers to plant crops appropriately.
This in the end led to increased food prices that in-turn drove inflation upwards.
However the timing was made worse by the increased fuel prices that led to increased costs of transportation that directly feed into the prices of goods.
The inflation was far made worse by the depreciation of the Shilling on the Dollar in Uganda, Kenya, Tanzania and Burundi.
In 2012, as the combination of the above begin to improve inflation will most likely begin to slowdown easing on the current economic stress that has piled pressure on regional economies.
The introduction of new monetary tools that target inflation are likely to continue as long as inflation keeps biting.
Fuel
Global fuel prices in the year rose from about $95 to $100 per barrel and for oil importing economies within the region; this meant a rise in price for both diesel and petrol.
Increased fuel prices also led to a rise in the costs of transportation increasing the cost of doing business and contributing to inflationary pressures with the region.
At petrol pumps, motorists and small businesses that rely on fuel to power their generators have been affected most. The energy crisis in the country has made it far worse for businesses that rely on constant supply of electricity.
This means that businesses have to pay more to spend on fuel. Fuel prices for an importing region can only be reduced with the implementation of subsidies, tax breaks and creating buffers.
For Uganda, the wait for commercial production continues to drag on meaning that the hopes for lower fuel prices remain a long way.
Analysts note that fuel challenges in 2012 can be undone if there is a drop in the price per barrel and as long as the regional currencies continue to appreciate.
However this has already been undone by the rise in the global oil price in the early January to about $112 per barrel due to increased demand and the uncertainty over Iran.
Currencies
Most of the currencies of the region were battered by a strong Dollar in 2011 as the Euro-zone crisis continues to drag on.
The pressures on the Kenya, Uganda and Tanzania shilling were immense leading to the depreciation of these currencies. The poor performance of the local currencies has mostly kept central bank chiefs on their toes to find ways of dealing with this but they can only do so much.
The strength of the Dollar has been evident in around the world and with the Euro becoming less and less attractive, demand for the greenback kept rising.
The situation has already shown signs of improving as more dollar inflows made it to the region inform of remittances during the holiday season.
The Dollar strength will also continue to be tested by the inflows from NGO's and heightened ease in Europe with the euro.
The rising dollar heavily affected importation of goods and services, increased operational costs of some companies and led the government to delay in payments meant for thermal power generators.
In 2012, the currencies might continue to walk a tight rope if the trends on Europe get worse, reduced exports and if aid continues to slowdown.
The proposed single currency and Monetary Union if hastily ratified in 2012, might just not be the expected solution to the above challenges.
The strength of the regional currencies also heavily relies on the overriding performance of the various economies.
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