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May 21, 2015

How to turn Africa’s resource curse into a blessing: ICAEW-Cebr macroeconomic research

Flic en Flac, Mauritius/London. The extent to which resource-rich African countries are prepared to counteract a slowdown in the commodities boom seems to have improved in recent years, according to research launched by the Instituted of Chartered Accountants in England and Wales (ICAEW) during the African Congress of Accountants (ACOA15).

ICAEW’s research, conducted in partnership with the Center for Economics and Business Research (Cebr), a consultancy, identified that growth in a number of African countries is "more broad-based", with manufacturing and services sectors growing in importance as opposed to traditional ones such as extractives industries.

ICAEW and Cebr’s joint study pointed out that a crucial external factor underpinning this trend is China’s ambition to "climbing up the global supply chain from its current status as ‘the world’s factory’".

As the research explained, China is Africa’s biggest investor and as it evolves from its manufacturing-based economy, African countries can compete to "fill this space".

This space is currently eyed by South East Asia economies, where "the landscape is more competitive for companies looking to set up labour-intensive factories due to lower wages".

In addition, the report highlighted the work done by certain African governments to improve the business environment and attract foreign investment.

Quoting the World Bank’s Doing Business report, the study emphasised the top-performing status of the Sub-Saharan African countries as regulatory reformers, with 39 having reduced complexity and costs associated with regulation and 36 of them having strengthened legal institutions.

It also underlined that in the World Bank’s Ease of Doing Business Index, Mauritius ranked in the top 30, ahead of Japan and Spain. And Rwanda, ranked 46th featuring ahead of countries like Panama, Italy or Luxembourg.

The study also observed that regulatory reforms, while needed, might not be sufficient to turn Africa’s "resource curse into a blessing".

Other measures that can help counteract oil and resources dependency could be financial risk-management mechanism, such as derivatives (forward, futures and options) to neutralise price fluctuations.

Other measures cited in the study are weather-based insurance, and a fiscal policy based on the economic theory of "saving in good times and spending in downturns".

ICAEW and Cebr’s study predicted that West and East Africa regions are poised to experience the greatest growth.

In West Africa, Ivory Coast will show the fastest GDP growth rate, 7.9%, in the continent. In Nigeria, the non-oil sector "should support strong economic growth of 4.9%, accelerating further to 7.3% in 2016 as oil prices see a slight correction".

Despite less optimistic forecasts for Ghana due to inflation levels and lack of fiscal consolidation, the country could still grow at the Sub-Saharan African average of 4.6% thanks to the gas sector’s contribution in the economy.

Cerb’s rosy forecasts for East Africa are based on the economic integration process of the region, the East African Community, with domestic demand playing a leading role in the growth prospects.

Kenya should reach 5.5% growth by 2017 from the current 4.5% rate expected for 2015. The consultancy’s forecast for Tanzania rocketed further, 7.2% for 2015, stabilising at 6.0% during the following years.

ICAEW’s African and Mauritian representatives Michael Armstrong and Panna Jhugroo introduced Cebr senior economist Danae Kyriakopoulou, who shared the highlights of the research.

The chief executive of the Pan African Federation of Accountants (PAFA), Vickson Ncube, was also among the speakers and noted that the continent’s challenges are "in the hands" of African countries themselves.

"We need a new generation of leaders who focus on the well-being of our continent, away from individualism," he said.

That mentality of individualism, according to Ncube, is one of the continent’s biggest fail, which materialises in the form of corruption.

"Corruption is present in every part of the world. I’m not telling lies. But one big difference is that the impact of one dollar of corruption on Africa has bigger consequences on our people than in England," he said.

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