African economies increasingly need to create a suitable environment to encourage the development of companies in the manufacturing and services sectors in which to invest to boost growth, which cannot continue to be driven by exports of raw materials.
The need to restructure the two strategic sectors is recognized in the Economic Insight: Africa Q1 2016, the latest study of Institute of Chartered Accountants in England and Wales (ICAEW) on growth in Africa. Published in late March, the quarterly economic forecast contains numerous observations on the current state of sub-Saharan African economy, which in substance is even outlined by positive valuation showing an average GDP increase of 4.3%, between 2015 and 2020.
As well as highlight the weakness of the economy of the region is still represented by the strong dependence on raw materials, the report underlines the important role in the growth exercised by foreign direct investment (FDI), mostly from the United States and China.
The document also notes the concrete growth of the secondary and tertiary sectors. Then highlights that compared to the first half of the current decade in the next five years growth will be concentrated in a small number of countries and in many sectors, as well as based on external drivers.
The implementation of good economic policies will therefore be increasingly important also in view of the expected slowdown in the new urban job creation, which will grow at a slower pace than the increase of the population in many African cities. Of course, one of the most important challenges that many countries will face in the coming years is represented by the defense of security and terrorism that undermine business and consumer confidence.
Prospects and problems of the green economy
The document also mentioned the approach to the green economy of some East African countries that aim at sustainable development and to overcoming past energy production techniques, but also reducing the need to extend the national energy grid to remote villages.
Among them it stands out Rwanda, where near Lake Mugesera, sixty kilometers east of the capital Kigali, built a solar energy installation that is a model for the entire continent. While since last October, in southern Ethiopia, it began to produce energy the Gilgel Gibe III hydroelectric power plant with an installed capacity of 1870 megawatts output.
Intense exploitation of renewable energy is also developed from Kenya, became the seventh highest producer of geothermal power globally after it recently unveiled the second phase of the Olkaria geothermal plant, the largest in all of Africa, which added an extra 140 MW to the plant’s capacity.
However, these investment projects are not without weaknesses. For example, the effects of the green revolution in Rwanda have been the subject of criticism documented in a recent British University of East Anglia (Norwich) report.
While, from the beginning the construction of a hydroelectric plant Gilgel Gibe III in Ethiopia was controversial for significant socio-environmental damage that is having on the region. The negative impact on ecosystems and subsistence economies dependent from the Omo River is fully described in a Survival International report, where was even denounced the possible disappearance of Kwegu tribes.
Good growth prospects for Kenya
The forecasts on the economies of individual countries favor Kenya, considered the least commodity-dependent among all states of the East African Community matters (EAC). This low dependence combined with a relative but tangible economy diversification should expand the Kenya’s economic growth outlook by around 6% during the 2017 to 2020 period.
The estimates are less optimistic for Nigeria and South Africa, the two major economies in the continent, in trouble because of the collapse in oil and commodity prices.
Another promising sector for the sub-Saharan area development is the FinTech, namely the digitization of financial services, which has experienced rapid growth over the past five years and has allowed more digitally active consumers to streamline and improve traditional banking services.
Finance online is going through a period of unprecedented development in Africa being able to provide quality financial services and in line with individual customer requirements. The new financial technologies have also contributed significantly to reduce transaction costs and simplify the ease of transferring money.
In addition, mobile banking has enabled the social lending to spread on large- scale, increasing the traditional savings and generating more money transfers even in stokvel, as are called the savings companies in South African townships.
@afrofocus
African economies increasingly need to create a suitable environment to encourage the development of companies in the manufacturing and services sectors in which to invest to boost growth, which cannot continue to be driven by exports of raw materials.
