COFFEE: The old model of exporting raw materials is increasingly becoming unsustainable. (BusiWeek)
KAMPALA, UGANDA – Africa is the most commodity-dependent continent on earth, but in the East African Community, Kenya is the least dependent.
Africa’s economies increasingly need to create a hospitable environment for companies in the manufacturing and services sectors, Michael Armstrong, the Regional Director, Institute of Chartered Accountants in England and Wales (ICAEW) for Middle East, Africa and South Asia said last week.
He said this will drive growth, as the old models of growth driven by exports of raw materials are out-dated.
Within the East Africa Region, Kenya’s economy should expand by around 6% during the 2017 to 2020 period thanks to its relatively diversified economy and comparatively low commodity dependence bonding well with the country’s economic growth outlook.
“The East African region is embracing the use of renewable energy to leapfrog older power generation technologies, while also reducing the need to extend the national energy grid to remote villages,” Armstrong said.
The remarks were made following publication of an ICAEW study on growth in Africa. It reveals that growth is expected to average over 4% for the next five years.
ICAEW was set up by Royal Charter in 1880. It has over 144,000 members. Over 15,000 of these members live and work outside the UK alone. The Institute also has some 9,000 students.
In its report dubbed ‘Economic Insight: Africa Q1 2016’, ICAEW reveals that Africa is still heavily commodity–dependent.
However the accountancy and finance body reports some good news for the African economies. Then warns that manufacturing still accounts for a small share of output and states that the old model of exporting raw materials is increasingly becoming unsustainable.
The report notes that GDP growth in Africa is projected to average 4.3% between 2015 and 2020.
Nigeria, the largest economy on the continent, is expected to contribute significantly to Africa’s economic expansion –at an average real rate of 4.8% p.a. between 2015 and 2020, contributing over 25% to the continent’s forecast growth in this timeframe.
The report notes that Kenya, for instance, is now ranked the seventh highest producer of geothermal power globally after it recently unveiled the second phase of the Olkaria geothermal plant. Olkaria is now the biggest single- turbine geothermal plant in the world.
However, Kenya continues to face its own unique challenges. The country’s unwarrantable fiscal situation is the primary reason why both Standard & Poor’s and Fitch Ratings downgraded the country’s outlook from stable to negative last year.
The study states that to mitigate against these negative perceptions, the Kenyan government has taken important steps towards fiscal consolidation by preparing a supplementary budget. This is intended to reduce both development and recurrent public spending in the current fiscal year.
Tom Rogers, Associate Director, Macro Consulting at Oxford Economics, said: “A clear plan for preventing fiscal slippage will be needed to underpin confidence in public finances and economic stability.
“The government’s recognition of these economic concerns will be needed to address these issues and instill some confidence in the country’s economic outlook,” he said.
According to the ICAEW Economic Insight: Africa report Innovation in financial services technology– known as as FinTech – has erupted as a primary global investment opportunity and has recorded rapid growth over the past five years as technological innovation allowed digitally active consumers to streamline and improve on traditional banking services.
Tom Rogers said: “The online financial sector has really taken off in Africa, answering a need for quality financial services and tailor- made solutions to structural challenges including frequent power disruptions and poor rural infrastructure.“
FinTech significantly contributed to the ease of transferring money and remitting earnings, acquiring insurance and attaining credit.
Mobile banking has enabled peer-to-peer lending on a larger scale.
To be admitted to membership of the ICAEW, applicants must generally complete 450 days of relevant work experience (training) and pass a series of examinations.
During the training, the candidate will also need to display professional ethics and skepticism along with showing a commitment towards continuous professional development, which must be maintained even once the qualification has been obtained.
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