The Gulf Cooperation Council (GCC) seeks stronger trade ties with Africa
Amid falling commodity prices, the economic climate for Africa is one of short-term turbulence, with possibilities of long term strength. IMF forecasts GDP growth of 3.7% for 2015 and 5% for 2019 for the entire region, with Ethiopia in the lead at 8.5% GDP growth in 2015 and 7.5% in 2019. While lower commodity prices are dragging down exports in the region, the exposure to commodities is very different from one country to another. Rwanda, Ethiopia and Uganda have diversified significantly through the manufacturing sector, while Kenya is following a diversification strategy via the services sector. This was highlighted by Julien Marcilly, Chief Economist of Coface, a trade credit management and risk assessment firm, at the Country Risk Assessment Conference 2015 in Dubai. “The challenges in the short term for Africa are low global growth and lower commodity prices. The magnitude of fall in hard commodities has been higher, with the countries most at risk being Nigeria, Congo, Gabon and Sudan.”
Held as the opener of Global Trade Development Week (GTDW), the conference included a panel on the economic outlook for Africa, with speakers sharing their views on the biggest challenges faced by African governments as they embark on different policies and strategies to recovery. The panel also discussed the other sources of growth to protect economies of the region, the new developing markets and sectors and the anticipated developments to stimulate economic growth.
In the champion economy of Ethiopia, the government has been able to control inflation through prudent fiscal and monetary policies, bringing down inflation to single digits, as per an Economic Overview and Trade Analysis report on the region released by Dubai Exports, an agency of the Department of Economic Development, Government of Dubai. In 2012-13, Ethiopia’s economy grew by 9.7%, which made Ethiopia one of Africa’s top performing economies. However, trade and industrial policies are not yet attuned to global value chains. The same report points to a resurgence in the Kenyan economy, with the short- to-medium-term forecast pointing to sustained and rising growth based on increased investor and business confidence in the wake of peaceful March 2013 elections, increased rainfall, a stable macro-economic environment, lower, stable international oil prices, stability of the Kenya shilling and reforms affecting security, governance and justice.
In comparison to other world economies, African nations have a long way to go. In the 2016 World Bank Doing Business Report, which measures regulatory quality and efficiency in domestic companies, Kenya ranks at 108 while Ethiopia is at 146. Both have however risen from their previous rankings, indicating a shift in addressing the business environment of these growing economies. Riyaz Jamal, Chairman RiNi Holdings, which has been active in East Africa, says “There is an IT revolution in East Africa at the moment, though the market is not yet structured. Here resellers are often the distributors. But in this business climate, it is the right time for financial institutions to enter aiding the diversification and creating an economic balance. This would greatly impact the growth story in countries like Tanzania, which are currently reliant on tourism, minerals and trade.”
Infrastructure developments are also needed to further the growth policies of the government. At the India-Africa Summit held in New Delhi, India, in October this year, the India Africa Business Council (IABC) highlighted that cooperation in this sector would allow Africa to receive investments in projects and support in the form of training and capacity building. The council also highlighted that the Indian experience of PPP (public private partnership) could also be emulated in Africa.
Trade links with historical partners such as India and newer trading companies coming from regions like the GCC will also play a major role in improving the economic climate of the region. Dr. Ashraf Mahate, Head of Market Intelligence at Dubai Exports, who spoke on the Africa segment of the Country Risk Assessment Conference, commented that the continent is an amazing opportunity for companies to expand their businesses in a market that is rapidly growing and becoming more urbanized. He highlighted that Africa is also expected to have more than half a billion middle class people by 2030. In a recent report, Dubai Chamber of Commerce said the UAE was Africa’s 19th major export destination, accounting for 1.1 percent of Africa’s total world exports. Research also found that the UAE is Africa’s 18th major import supplying market with a share of 1.6 percent. The report said the formation of Africa’s yet to be ratified Tripartite Free Trade Agreement (TFTA), with 26 signatory countries, “would bring about major economic and structural reforms in most of the African economies”.
Highlighting the investor climate in the region, Jean Christophe Batlle, CEO – African Countries, at Coface said, “Investors entering this market have already assessed the risks. Companies have to realize that the best margins exist in Africa. Banks for instance have found that the revenue-profit split they find here is better than at home offices. The key challenge that remains is identification of counterparts and this can be done by partnering with the right people who have extensive experience in the region.” The burgeoning middle class in Africa presents a customer base that can be tapped through the right channels. “With innovations in the banking sector, airport expansion and infrastructure development on the ground, improving inland facilities, whoever has not entered this market yet is already late,” he concluded.
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