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AfricaMoney | July 25, 2017

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Risks for Africa on the downside as world economy in recovery mode: ICAEW report

Risks for Africa on the downside as world economy in recovery mode: ICAEW report

Diversification is key to protect African economies, thus diversifying their sources of growth is the way forward, together with relying less on export of raw materials as a source of revenue.(Image: Company)

Leading accounting and finance profession association, the Institute of Chartered Accountants in England and Wales (ICAEW), released The ICAEW Economic Insight for Africa, which is a quarterly economic forecast for the region that is prepared directly for the finance profession to gain an idea on the outlook for Africa.

The Economic Insight Africa Q2 2015 issued by ICAEW and presented by Centre for Economics and Business Research (Cebr), an ICAEW partner, allows 144,000 members to gain an overview of the economic performance of the region.

The official launch of the edition was organised by the ICAEW at the Hilton Mauritius Resort and Spa on Wednesday, 13 May 2015, in the presence of African delegates and legislators.

The report demonstrates that, seven years after the world economic crisis, the economic perspective for Africa has improved, with underlying figures showing a relatively strong year courtesy the big economic boost caused by the drop in oil and raw materials prices.This represents a real breath of fresh air for consumers of the whole world as it lowers the cost of living.

DanaeKyriakopoulou, economic adviser at ICAEW and Senior Economist at Cebr, declared: “With this price reduction, there are winners and losers because the balance of economic power changes and shifts from exporters of basic products to importers. For certain economies which export oil and raw materials, including a number of African countries, the price reduction reduced the profits and the fiscal receipts.”

“The purchasing power is also lower, given that with the same volume of exports, fewer products or services can be purchased as imports. This makes a country less attractive for investors as sectors become less profitable,”she noted.

Given that the BRIC countries (Brazil, Russia, India and China) buy 44% of the exports of Africa, the report underlines that the economic slowdown in these four big developing economies represents the biggest external risk for Africa from an economic perspective.

A slowdown in the growth of BRIC countrieshas caused oil prices toplunge, triggering problems in oil exporting African economies. However, oil prices may go up in the future.

Danae indicated, “There is good news for exporters of basic products as the surplus on offer  that pushed the prices down is slowly going to take effect as soon as producers with high costs leave the market. On the demand side, today, cheap oil prices decrease the desire of oilconsumers to opt for alternative sources of energy.”

“These two factors show that oil price should rise while the world economic recovery strengthens, stimulating growth and purchasing power in petroleum exporting countries. It is important to keep in mind, however, that this is only a buffer and does not mean that an economic diversification is not necessary,”she noted.

International Monetary Fund (IMF) figures suggest that between 2013 and 2015,metalprices will have fallen by a quarter, and food and beverage prices will have fallen by almost a fifth. Agricultural raw materials, such as timber, cotton and wool, are also expected to see their prices decline, but by a lesser extent.

If Africa is to become a success story, it is because it will have learnt how to expand and diversify its economies, and for this, the continent must first reduce its dependence on basic product exports.

Thus, in spite of an estimateddouble-digit 20.3% reduction in the prices of basic products in 2015, the growth should slow down only slightly to 3.6% from 4.0% in 2014.

Finally,in the future, there is even a possibility that the trend is reversed with the strengthening of the economic performance of Sub-Saharan African economies in 2020.

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