The Market Intelligence deliverable aims to provide accurate intelligence around potential international markets intelligence and global market trends identified in the target regions of Eastern Africa in the Water-Smart products.

Latin America (Peru and Bolivia)

Socio-cultural analysis

Peru and Bolivia have maintained an average value score in democracy over the last decade and showed decreasing tendency during the last 3 years. Democracy in both countries is to some extent, limited. The region faces significant challenges, including tightening global financial conditions, lower global growth, persistent inflation, and increasing social tensions amid growing food and energy insecurity. Poverty and inequality also remain vital concerns, given that the increase in inflation has an uneven impact on the population. The most vulnerable groups in the region are being hit hard by the rise in basic food and energy prices while still struggling to recover from the economic impact of the pandemic. The region suffers from crime groups and conflict driven by deteriorating political and economic situations

Economic analysis in Peru

Peru has solid macroeconomic fundamentals, including a relatively low public debt to GDP ratio, considerable international reserves, and a solid central bank. Peru's economy rebounded strongly in 2021, but poverty reduction was slowed by structural rigidities in the labor market and inflation. After a strong recession in 2020, real GDP grew 13.3 percent in 2021, reaching its pre-pandemic level. The recovery was led by domestic demand, supported by the expansion of both public and private expenditure. The public deficit decreased from 8.9 percent in 2020 to 2.6 percent in 2021, one of the fastest fiscal consolidations in the region. This reduction was mainly driven by a 40 percent real increase in public revenues because of higher tax collection from mining companies, the effect of some administrative measures, and prepayment of some tax fines. The economy is expected to expand by about 3.4 percent in 2022, mainly driven by higher export volumes, while domestic demand will gradually decelerate.

Current Trends in Peru

The current account deficit remained weak in 2020. The drop in net income payments (resulting mainly from lower profits in foreign-owned mining firms) offset the weaker surplus in the trade balance and the higher deficit in services (due to a decrease in travel revenues). On the financing side, while FDI deteriorated, they still fully covered the small deficit in the current account. A new legislative took office in March 2020 for the remainder of the 2016–2021 congressional period, but it failed to improve the political environment. In July 2020, the refusal of legislators to eliminate their immunity generated a direct conflict with the executive and prompted Congress to remove presidential immunity (the bill was approved in the first vote, but a second round is required). More so, Peru struggles with principal environmental issues of water pollution, soil erosion, pollution, and deforestation.

Economic analyses in Bolivia

After the commodities boom ended in 2014, Bolivia resorted to high public spending and growing domestic credit to maintain its high economic growth. These measures resulted in increased public debt and reduced international reserves and fiscal savings accumulated during the boom. The health crisis caused by COVID-19 plunged the economy into a recession that led to a rebound in poverty. The Government deployed different initiatives such as cash transfers and credit deferrals to protect the most vulnerable population. Since 2021, the economy has shown essential signs of recovery due to the improvement in the international environment and the relaxation of the isolation measures adopted at the beginning of the pandemic. Limited gas reserves, an increasingly challenging regional market, and global efforts to decarbonize the energy sector make it necessary to seek alternatives to gas exports. There are still some remaining opportunities in energy.

Current Trends in Bolivia

In 2021, economic activity was expected to rise again after a sharp contraction in 2020, supported by household support and a moderate recovery in external demand. The election to the presidency of Luis Arce in October 2020, former Minister of Economy for Evo Morales, signals the return to power of the MAS (Movimiento al Socialismo) party. This means a return to an economic policy focused on supporting internal demand and public investment, whereas the interim Government had focused on the liberalization of the economy. The Government's recovery plan is not expected to reduce the public finance deficit substantially. The Government plans to reduce VAT in the case of payment by credit card and to reimburse it to the poorest households. It is unlikely that the new wealth tax will make it possible to offset this increase in spending. Regarding the current account, the recovery of domestic demand should lead to a further widening of the trade deficit, reinforced by the weak dynamism of the gas sector, the main source of export revenues.

EASTERN AFRICA (Kenya and Uganda)

Socio-cultural analysis

Both countries respect loyalty, commitment to a member group, strong and close relations, and sharing mindset. Such characteristics were acquired because Africa was inhabited for centuries by various tribes and ethnic groups that worked closely together to thrive and survive. On a Scale of 0 – 10. Uganda's rank is 4,48 and Kenya's 5,05, whereas in last 3 years, Uganda has shown decreasing results and Kenya is almost constant in this category. Currently word average is 5,28, and the rank for Europe is 8,36. The results indicate that democracy is in both countries quite limited. Both countries have elected leaders, although the process is always characterized by violence and rigging votes.

Economic analyses in Uganda

The World Bank reports that Uganda's economy accelerated significantly as domestic economic conditions improved following the easing of mobility restrictions between October 2021 and February 2022. Dealing with the consequences of the pandemic and investments in the oil industry have injected optimism into the economy. The economic outlook will also depend on maintaining macroeconomic stability; better support for the vulnerable, farmers and small businesses, implementing of digital technologies; and efficient use of public resources.

Current Trends in Uganda

Health, political, and climate uncertainties will hamper the recovery. The pandemic has had a devastating impact on tourism, trade, manufacturing, construction, and agriculture. Public investment in 2021 supported the recovery through transport and energy infrastructure development. Moreover, in the most recent western Uganda, a few cases of Ebola seem to be under control yet a threat. The crisis increases the risks to external accounts The budget deficit is expected to continue to widen in 2020/21 due to reduced domestic revenue collection and increased spending due to the pandemic-related crisis. The deficit will be supported by higher capital spending. Uganda is currently facing an emergency of Sudan Ebolavirus (SUDV). The Ugandan Ministry of Health (MOH) declared an outbreak of Sudan Ebolavirus (SUDV).

Economic analyses in Kenya

Kenya has undergone significant political and economic reforms, which have led to sustained economic growth, social development, and political stability. However, key development challenges are still poverty, inequality, transparency and accountability, climate change, weak private sector investment and the economy's vulnerability to internal and external shocks. Changes in political and economic governance (a new constitution in 2010 introduced a bicameral legislature, devolved district government, and a constitutionally held judiciary and electoral body) strengthened stabilization and sustainability of growth. From 2015 to 2019, growth averaged 4.7% per year, leading to a decline in poverty. The pandemic has damaged the economy and disrupted international trade, transport, tourism, and city services.

Current trends in Kenya

There has been a decline in tourist activity (10% of GDP and 9% of employment) with the suspension of international flights until August decimated the economy. Investment (17% of GDP, in case of demand) has been hit by budget cuts and a drop in confidence among national and foreign private players. The budget deficit, which was already high, increased slightly in 2020 due to the automatic drop in revenue resulting from tax giveaways. At the same time, social and health expenditure increased. The country was forced to turn to the IMF (USD 739 million) and the World Bank (USD 1 billion) to make up the deficit and finance projects. As a result, public debt could reach 70% of GDP, excluding state-owned enterprises and state-guaranteed debts, which are considered high risk by the IMF.

References

1. https://www.devex.com/news/what-the-food-crisis-means-for-latin-america…

2. https://www.trade.gov/peru-contact-us

3. https://www.devex.com/news/opinion-g-20-must-do-more-to-fight-instabili…

4. https://www.statista.com/statistics/858737/leading-banks-peru-total-ass…

5. https://www.bakermckenzie.com/-/media/files/insight/guides/2022/doing-b…

6. https://furtherafrica.com/2022/06/02/potential-investment-sectors-in-ea…

7. https://www.trade.go.ke

8. https://www.devex.com/news/clash-over-water-sources-puts-kenya-s-food-s…

9. https://www.devex.com/news/uganda-declares-outbreak-of-rare-ebola-strai…

10. https://ug.usembassy.gov/category/health-issues/