Africa needs strong re­form­ers – Deloitte

CityPress - - Business - GOD­FREY MUTIZWA busi­ness@city­

Africa’s eco­nomic out­look is worsening be­cause of poor po­lit­i­cal and fi­nan­cial gov­er­nance. This ex­ac­er­bates the ef­fects of lower com­mod­ity prices and an un­favourable global eco­nomic en­vi­ron­ment.

Mar­tyn Davies, the manag­ing di­rec­tor for emerg­ing mar­kets and Africa at Deloitte, said this week that Africa’s two big­gest economies – Nige­ria and South Africa – were drag­ging over­all African growth lower. This at a time when the con­ti­nent was fac­ing ris­ing risks such as slow­ing growth in China, weak­en­ing cur­ren­cies, rat­ings down­grades and cli­mate change.

To re­verse the down­ward growth tra­jec­tory, the con­ti­nent re­quired deep struc­tural re­forms. De­scribed by Davies as “po­lit­i­cally dif­fi­cult to do”, such re­forms in­clude bet­ter man­age­ment of sta­te­owned en­ter­prises and im­proved gov­er­nance struc­tures.

“We need to see the rise of eco­nomic re­for­m­minded lead­er­ship across the con­ti­nent,” Davies told City Press, af­ter pre­sent­ing a pa­per on grow­ing risks to Africa’s growth story at a one-day Deloitte con­fer­ence, held in Jo­han­nes­burg.

“It is much more about eco­nom­i­cally lit­er­ate gov­ern­ments – gov­ern­ments which can do a lot more with a lot less, as op­posed to do­ing a lot less with a lot more – which ul­ti­mately have sig­nif­i­cantly bet­ter po­lit­i­cal and fi­nan­cial gov­er­nance of these coun­tries.”

The In­ter­na­tional Mon­e­tary Fund has fore­cast that sub­Sa­ha­ran Africa’s growth will av­er­age 1.4% this year, sig­nalling the slow­est pace in 20 years and al­most half that of 2015. The mon­e­tary or­gan­i­sa­tion at­trib­uted this to the re­gion be­ing weighed down by an un­favourable global en­vi­ron­ment and in­ad­e­quate pol­icy re­sponses in many com­mod­ity pro­duc­ers, such as South Africa and Nige­ria.

With the re­gion’s GDP per capita also drop­ping for the first time in 22 years, that meant the re­gion was in re­ces­sion, Davies said.

He added that bet­ter fis­cal man­age­ment and re­forms would prob­a­bly see South Africa’s econ­omy grow by be­tween 5% and 5.5% in the medium term.

Over­all, south­ern Africa’s growth was deeply dis­ap­point­ing, with the ex­cep­tion of Botswana and Namibia – iron­i­cally, two economies largely de­pen­dent on South Africa.

Turn­ing to Nige­ria, Davies made men­tion of Pres­i­dent Muham­madu Buhari’s ef­forts to solve the cri­sis caused by lower oil prices through poli­cies he ini­tially tried in his first term of of­fice, from 1983 to 1985.

Even though the oil sec­tor made up about 15% of GDP, Nige­ria still relied on it for more than 80% of its ex­port earn­ings, ham­per­ing the abil­ity of com­pa­nies to do busi­ness, Davies said.

“They didn’t work then and will not work now. I can­not think of a coun­try ar­guably with a greater need for struc­tural re­form than Nige­ria right now, no mat­ter where you are in the world.”

The di­min­ish­ing fis­cal space for many gov­ern­ments was also in­creas­ing reg­u­la­tory risk, as seen in large fines levied on com­pa­nies such as MTN Group in Nige­ria and Exxon Mo­bil in Chad, Davies added.

MTN was ini­tially fined $5.2 bil­lion (R70 bil­lion) by Nige­ria’s telecom­mu­ni­ca­tions reg­u­la­tor last year – the big­gest such fine at the time. The amount has since been re­duced to $1.7 bil­lion.

Tied to the un­cer­tain reg­u­la­tory en­vi­ron­ment was what Davies called “the risk of cap­tured cap­i­tal”, whereby com­pa­nies were un­able to repa­tri­ate div­i­dends be­cause of a short­age of for­eign ex­change.

Mar­tyn Davies

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