According to the National Bureau of Statistics (NBS), the Gross Domestic Product (GDP) grew by 4.8% year-on-year in the first three quarters, reaching approximately RMB 94.97 trillion (US$13 trillion). While this growth lags behind the double-digit rates of previous decades, it represents a rebound from pandemic-induced slumps and showcases resilience in a rapidly evolving global economy.

READ ALSO: http://Geostrategic Shifts: China’s Influence vs Western ENgagement in Africa

Retail sales, a barometer of consumer confidence, increased by 4.8% in October 2024, bolstered by record spending during events like Singles’ Day. Industrial output rose 5.8% in the same period, with high-tech sectors achieving an impressive 9.1% growth. These figures underscore the role of technology and domestic consumption as drivers of recovery.

However, challenges remain. The real estate sector, contributing roughly 30% of China’s GDP, has faced enduring pressures, with major developers reporting declining revenues. Externally, intensifying trade disputes, particularly with the U.S., compound the complexity of China’s economic path forward.

Policies Steering the Recovery

China’s central government has rolled out a suite of policy measures aimed at stabilising and stimulating growth. These include tax incentives for small businesses, infrastructure investment worth billions of dollars, and targeted support for struggling sectors like real estate. The People’s Bank of China has also lowered interest rates to spur lending and counteract deflationary pressures.

In tandem with domestic policies, Beijing has reinforced its Belt and Road Initiative (BRI), strengthening economic ties with Africa, Southeast Asia, and the Middle East. These strategic investments, particularly in energy and infrastructure, not only bolster China’s economic standing but also foster regional interdependence.

Global Implications of China’s Rally

The impact of China’s economic activity extends far beyond its borders. Accounting for approximately 18% of global GDP and nearly 11% of global imports, China is a critical player in global trade. A strong Chinese economy can invigorate global growth by driving demand for commodities and manufactured goods. Conversely, any stagnation in China could reverberate globally, particularly in emerging markets reliant on Chinese investment and trade.

1. Commodities Market: China remains the largest consumer of key commodities, including steel, coal, and rare earth metals. A recovery in its construction and manufacturing sectors has triggered a moderate rebound in global commodity prices.

2. Supply Chain Dynamics: As a hub for global manufacturing, China’s recovery has eased bottlenecks in critical supply chains. However, the decoupling trends driven by geopolitical tensions may encourage nations to diversify supply sources, reducing reliance on China in the long term.

3. Financial Markets: Chinese firms’ performance in technology, renewable energy, and electric vehicles (EVs) continues to shape investor sentiment. The country’s recent measures to ease foreign investment restrictions have opened new avenues for global capital inflows.

Challenges to Sustained Growth

China’s recovery is not without hurdles. The demographic shift, marked by a declining working-age population, poses a significant long-term challenge. Additionally, escalating geopolitical tensions, particularly in the Taiwan Strait and South China Sea, risk destabilising economic progress.

From a trade perspective, the re-escalation of U.S.-China tariff disputes threatens the already fragile relationship between the two economic superpowers. Emerging sanctions on high-tech exports to China could stifle innovation in critical industries such as AI and semiconductor manufacturing.

Future Outlook

Looking ahead, China’s economic policies will play a pivotal role in determining global market stability. Key areas to watch include its transition towards green energy, the evolution of its domestic consumption model, and its ability to manage external shocks. Experts predict that China’s GDP growth could stabilise at 5% annually by 2025, driven by innovation in AI, renewable energy, and advanced manufacturing.

For the global economy, China’s trajectory offers a dual narrative: on the one hand, a strong Chinese recovery can drive international trade and bolster commodity markets; on the other, lingering uncertainties necessitate cautious optimism. Policymakers worldwide will need to balance their economic dependencies on China while navigating the intricacies of a multipolar global market.

China’s economic rally is emblematic of resilience and adaptation in a time of global volatility. With targeted policy interventions and a pivot toward innovation-driven growth, the nation has demonstrated its capacity to navigate complex challenges. Yet, the global implications of its recovery are far-reaching, influencing markets, trade flows, and geopolitical alignments.

The post China’s Economic Rally and Its Global Market Effects appeared first on African Leadership Magazine.

The global fintech market, currently valued at USD 294.74 billion, is projected to experience substantial growth. By 2024, it is expected to reach USD 340.10 billion and further expand to USD 1,152.06 billion by 2032, reflecting a robust compound annual growth rate (CAGR) of 16.5% over the forecast period. As of 2023, North America dominates the global market with a notable share of 34.05%.

READ ALSO: http://Fintech in Africa: The next Big Revolution in Global Africa?

Fintech companies operating in the business-to-business (B2B) sector offer diverse financial technology services, tools, and solutions, primarily delivered via the cloud. This enables businesses to integrate and leverage financial technologies without the need for costly in-house development.

In Africa, the fintech digital assets market is projected to grow by 9.01% between 2024 and 2028, reaching a market volume of USD 56.47 billion by 2028. The sector is experiencing rapid expansion; as of 2021, fintech companies constituted nearly half of Africa’s 5,200 tech startups.

The African creative economy, too, has witnessed remarkable growth in recent years. The rising global demand for African creative products has directly contributed to economic development, particularly through the generation of new employment opportunities.
Fintech solutions are central to promoting financial inclusion and economic empowerment in Africa. However, their impact extends beyond these areas. They foster a sense of self-identification with African narratives, enabling young Africans to express themselves in unprecedented ways within a digital landscape rich with opportunities.

The creative economy is a treasure trove of potential, not only for Africa but also for the world at large. It holds the promise of ushering in more progressive development across the continent. According to Douglas Kendyson, the Founder and CEO of Selar.co, ‘The Creative economy is really big, we are barely scratching the surface in this sector, and the possibilities are limitless. We need more platforms that facilitate the activities of young Africans in the creative economy.’

FinTech solutions are also driving growth in sectors such as mobile gaming, facilitating digital payments, and supporting the distribution of African creative products to wider markets. All these form an ecosystem of productivity that enhances the standard of living in this modern age and propels humanity further to greater heights.

The future of Africa’s creative industry is bright, fueled by the digital spark of Fintech. As financial inclusion and empowerment take root, African creators will rise, their talents reaching the world stage. This is the story of a continent finding its voice, empowered by innovation and ready to claim its rightful place in the global creative landscape.

The post The Role of Fintech in Transforming the African Creative Industry appeared first on African Leadership Magazine.

Inflationary Pressures

Inflation remains a pressing issue across many African nations. According to the World Bank, the average inflation rate in Sub-Saharan Africa reached approximately 7.2% in 2023, significantly higher than the global average of 3.5%. This inflationary trend can be attributed to various factors, including supply chain disruptions, political instability, and fluctuating commodity prices.

The International Monetary Fund (IMF) highlights that countries like Ghana and Nigeria have been particularly affected, with inflation rates exceeding 9% in recent years. This has led to increased costs of living and reduced purchasing power, impacting both consumers and businesses. For investors, high inflation poses risks but also opportunities, as sectors like agriculture and energy may benefit from shifting dynamics.

READ ALSO: African Film Industry and Big Financial Budgets

Innovation as a Counterbalance

Despite these challenges, innovation is playing a pivotal role in reshaping Africa’s financial markets. The rise of fintech solutions is one of the most notable trends. Mobile banking and digital payment systems are expanding access to financial services, particularly in rural areas. According to the African Development Bank (AfDB), the number of mobile money accounts in Africa grew to over 500 million by the end of 2023.

Additionally, blockchain technology and cryptocurrencies are gaining traction. For instance, Kenya’s use of blockchain for agricultural supply chains is enhancing transparency and efficiency. The rise of these technologies is not only providing new investment opportunities but also offering solutions to mitigate the impacts of inflation by streamlining transactions and reducing costs.

Economic Implications

The convergence of inflation and innovation presents both challenges and opportunities. On one hand, high inflation can erode the value of investments and savings. On the other hand, technological advancements can create new avenues for growth and financial inclusion. The Financial Times reports that African startups raised over $5 billion in venture capital in 2023, a testament to the continent’s burgeoning innovation ecosystem.

Navigating Africa’s financial markets requires a nuanced understanding of the dual forces of inflation and innovation. While inflation poses significant risks, the continent’s technological advancements offer promising solutions and opportunities. Investors and policymakers must stay informed and adaptable to leverage these trends for sustainable economic growth.

The post Inflation and Innovation: Economic Trends Impacting Africa’s Financial Markets appeared first on African Leadership Magazine.

According to the World Economic Forum, as of 2021, Africa received approximately 2% of the global cryptocurrency value, yet the continent’s growth rate in this sector has been significant. Between July 2020 and June 2021, Africans received cryptocurrency payments worth $105.6 billion, representing a 1,200% increase from the previous year. This surge underscores the rising influence of cryptocurrency in Africa, driven largely by peer-to-peer transactions, remittances, and business adoption.

Sub-Saharan Africa has the smallest crypto economy of all global regions, accounting for 2.3% of global transaction volume between July 2022 and June 2023. During this period, the region received an estimated $117.1 billion in on-chain value. Despite its smaller share, the region’s growth in cryptocurrency usage remains noteworthy.

Bitcoin has seen a remarkable increase in value, rising over 11,000%, while the Kenyan Shilling (KES) has depreciated by 7% over the same period. In 2017, the Central Bank of Nigeria (CBN) banned all banks from using, holding, trading, or transacting in cryptocurrencies, reflecting the cautious approach taken by some African regulators.

Chainalysis reports that Sub-Saharan Africa’s retail market and peer-to-peer (P2P) usage are unique. Approximately 6.4% of the region’s transaction volume consists of small retail transfers below $10,000, the highest proportion globally. Retail transfers constitute 95% of all transactions, with 80% of these being small transfers under $1,000, highlighting the widespread use of cryptocurrencies for everyday transactions.

Cryptocurrency’s Contribution to Africa’s GDP

Cryptocurrency has begun to make notable contributions to Africa’s Gross Domestic Product (GDP). While exact figures vary, estimates suggest that the cryptocurrency sector contributed approximately $2 billion to Africa’s GDP in 2023. This contribution is expected to grow significantly, with projections indicating a potential increase to $10 billion by 2028. The growth is driven by rising adoption rates, regulatory advancements, and the expansion of blockchain-based financial services.

Adoption and Demographics

The adoption of cryptocurrency in Africa has been remarkable, with an estimated 100 million individuals engaging with digital currencies across the continent as of 2023. Nigeria stands out as the leading market, with over 50 million crypto users, followed by Kenya with approximately 20 million users. Factors contributing to this surge include limited access to traditional banking services, high remittance costs, and the tech-savvy nature of the youthful population.

Governments across Africa are increasingly recognising the potential of cryptocurrencies and blockchain technology. Countries like Nigeria and Kenya have implemented regulatory frameworks to oversee digital currency transactions, aiming to balance innovation with financial stability. For instance, the Central Bank of Nigeria has introduced guidelines to regulate crypto exchanges, ensuring consumer protection while fostering industry growth. Similarly, Kenya’s regulatory approach encourages blockchain innovations that can enhance financial services and economic development.

Attracting International Investment

Africa’s burgeoning cryptocurrency sector has attracted substantial international investment. Venture capital firms and global investors are increasingly funding African crypto startups, recognising the continent’s potential for high returns and impactful innovations. Investments are being channelled into various segments, including cryptocurrency exchanges, blockchain infrastructure, and decentralised finance (DeFi) platforms, fuelling further growth and technological advancements.

Success Stories of African Crypto Startups

Several African companies are driving cryptocurrency adoption and innovation. For example, Bundle, a Nigerian wallet, has simplified the buying, selling, and transferring of digital assets with user-friendly interfaces and robust security features. BitPesa, a Kenyan company, uses blockchain to streamline cross-border payments, reducing costs and increasing speed for businesses and individuals. This has improved remittances and international trade across Africa. Flutterwave, a Nigerian fintech company, has integrated cryptocurrency solutions to enhance its payment platforms, enabling seamless transactions across different currencies and blockchain networks. In South Africa, BitHub is focused on blockchain education and development, nurturing a community of developers and entrepreneurs who are driving innovation across the continent.

Future Projections

According to Statista, the cryptocurrency market in Africa is projected to reach a revenue of US$3.1 billion in 2024, with a slight decline to US$2.9 billion by 2025. The average revenue per user is estimated to be US$57.0 in 2024, with the number of users expected to reach 53.89 million by 2025. While the global market is dominated by the United States, with a projected revenue of US$9.8 billion in 2024, Africa’s market shows steady growth and promising potential for future development.

African fintech startups have raised over $2.7 billion in the last two years, and it is anticipated that the sector will generate $230 billion in revenues by 2025. However, fintech companies using cryptocurrency remain in the minority.

The African continent is poised for significant growth in the cryptocurrency space, with forecasts suggesting a projected GDP contribution of up to $10 billion by 2028. This growth is driven by the increasing adoption of blockchain technology across various industries, including finance, supply chain management, and healthcare. Furthermore, the number of crypto users is expected to surpass 200 million by 2028, solidifying Africa’s position as a major player in the global cryptocurrency landscape.

Benedict Oramah, President of Afreximbank, has emphasised the importance of embracing cryptocurrencies in Africa, highlighting their potential to revolutionise remittances, trade, and investment. He stresses that digital currencies are essential for Africa’s future in the global digital economy.

The post Africa’s Influence in the Cryptocurrency Space appeared first on African Leadership Magazine.

The continent could be well-suited for a common currency when considering the nature of supply shocks that the region experiences. The African economy, comprising 54 nations, was projected to be around US$2.7 trillion in nominal terms in 2021, according to Africa the Statistics Times. Africa’s growth has been influenced by commodity prices; the continent holds a third of the planet’s mineral resources, 10% of the world’s oil reserves, and produces nearly 70% of the global diamond trade.

Historical Context

The idea of a single African currency gained momentum with leaders like the late Libyan leader Muammar Gaddafi, who was a strong advocate for the “Gold Dinar.” This proposed currency aimed to replace the US dollar and Euro in African transactions, thereby reducing Western influence and promoting African economic independence.

Gaddafi’s vision was based on creating a gold-backed currency that would unify Africa economically, potentially leading to a continent-wide banking system independent of Western financial institutions. However, his ambitions faced resistance from Western powers, who feared the potential impact on the global economic order.

President Nana Akufo-Addo of Ghana has expressed support for the Eco, a proposed common currency for the West African Economic and Monetary Union (WAEMU). He views it as a stepping stone towards broader continental integration, highlighting the potential benefits of a unified economic zone.

Similarly, President Alassane Ouattara of Côte d’Ivoire has also shown enthusiasm for the Eco, believing it could enhance economic stability and growth in the region. Additionally, President Paul Kagame of Rwanda has emphasised the need for stronger economic unity in Africa, including the possibility of a single currency as part of the continent’s broader integration efforts.

The Journey of Implementation

The CFA franc is a single currency used by eight independent states in West Africa, which make up the West African Economic and Monetary Union: Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

After decades of negotiations, fifteen countries in West Africa have agreed to adopt a single currency by 2027 called the ECO. The joint currency has been in development for 30 years, with the Economic Community of West African States (ECOWAS) announcing that the rollout will be gradual.

The move will see countries meeting the established criteria joining first, with the eight member states that currently use the CFA franc, which is backed by France, being closely monitored. Although experts are divided on the impact the ECO will have on the region’s economy, with some predicting benefits and others warning of potential risks.

Professor Lumumba P. L. O. (Kenya) argues that a single currency would strengthen Africa’s bargaining power globally and reduce dependence on foreign currencies. He believes it would facilitate easier intra-African trade and cooperation, marking a crucial step towards true African integration.

The Eurozone’s Single Currency vs. Africa’s Potential Unified Currency

The European Union’s experience with the Euro offers valuable insights into the potential outcomes of a unified currency in Africa. The Euro, introduced in 1999, facilitated trade across the Eurozone, eliminated exchange rate risks, and strengthened the EU’s global economic influence. However, the Eurozone also faced significant challenges, particularly during the Eurozone debt crisis.

Africa’s integration is still in its early stages, and a unified currency would require decades of economic and political integration. The African Union (AU) and regional economic communities like ECOWAS are working towards deeper integration, but political and economic diversity remains a significant barrier.

The Eurozone’s success was built on economic convergence, with similar levels of inflation, interest rates, and fiscal policies. In contrast, Africa is characterised by significant disparities in economic development, making it challenging to implement a unified currency. Nigeria and South Africa are economic powerhouses, while others have smaller, less diversified economies. Harmonising economic policies across these vastly different economies would be a substantial hurdle.

The introduction of the Euro involved a transfer of monetary sovereignty to the European Central Bank (ECB), which was crucial for managing the Euro. However, in Africa, ceding monetary control to a continental institution may face resistance. Countries with strong currencies or those benefiting from currency autonomy may be reluctant to relinquish control to a central African bank. This highlights the importance of addressing concerns around sovereignty and monetary policy in any attempt to implement a unified currency in Africa.

Projections and Possible Outcomes

If Africa were to successfully implement a unified currency, the potential benefits could be significant. Intra-African trade could see a substantial boost, as currency exchange costs and risks would be eliminated. This could lead to greater economic integration, making the African Continental Free Trade Area (AfCFTA) more effective. Additionally, a unified currency could enhance Africa’s bargaining power in international trade and finance, reducing its dependency on external currencies like the US dollar and the Euro.

Dr. Kingsley Moghalu (Nigeria), former Deputy Governor of the Central Bank of Nigeria, highlights the potential for a single currency to ease trade barriers, promote economic growth, and reduce currency exchange costs. This could enhance the competitiveness of African economies globally, making it an important step towards African economic integration.

However, the challenges are equally daunting. The success of such a currency would depend on achieving economic convergence, building robust institutions, and securing the political will to implement necessary reforms. The process would likely be gradual, starting with regional currencies like the Eco and eventually moving towards a continental currency.

As quoted by Dr. Vera Songwe (Cameroon), an economist and former Executive Secretary of the UN Economic Commission for Africa, a single currency could enhance regional trade and financial integration, particularly within blocs like ECOWAS. While economic structures vary widely, the long-term benefits of reduced transaction costs and increased financial stability could outweigh the initial challenges.

The experience of the Eurozone provides both a model and a cautionary tale, highlighting the need for careful planning and strong institutions. Africa’s diverse economies and political landscapes make the path to a single currency complex, but with concerted efforts, it could become a reality, bringing significant economic benefits to the continent.

The post Is a Unified Currency Possible in Africa? appeared first on African Leadership Magazine.

The launch event featured high-profile stakeholders, including the Minister of Environment, Balarabe Lawal, and the Director-General of the Securities and Exchange Commission (SEC), Dr. Emomotimi Agama. Their presence highlighted the urgent need for sustainable financing to address Nigeria’s environmental challenges. “With issues like flooding, pollution, and deforestation, we urgently need funds to tackle them. This is why we are approaching the market,” Lawal emphasised.

L-R: Doyen, Nigerian Exchange Group (NGX), Sam Willie Ndata; Doyen of the Capital Market, Alhaji Rasheed Yussuff; CEO, NGX Regulation, Femi Shobanjo; Executive Director, Risk Management, Access Bank Plc, Greg Jobome; Minister of Environment, Malam Balarabe Abbas Lawal, and Group Chairman, NGX Group, Alhaji Umaru Kwairanga at the launch of the NGX Impact Board at the Nigerian Exchange… recently.

Gregory Jobome, Access Bank’s Executive Director of Risk Management, praised the bank’s pioneering efforts in sustainable finance during the event. “As a leader in issuing corporate green bonds in Africa, Access Bank is committed to driving environmental sustainability and supporting projects that align with the Sustainable Development Goals (SDGs). The NGX Impact Board is a significant step towards fostering a greener and more responsible investment landscape,” he noted.

Gregory Jobome, Executive Director, Risk Management, Access Bank Plc in conversation with Balarabe Abbas Lawal, Minister of Environment at the launch of the NGX Impact Board at the Nigerian Exchange

Dr. Emomotimi Agama, Director-General of the SEC, reinforced the commission’s commitment to enhancing the sustainable finance market. “We are ready to deepen the market with diverse instruments that contribute to Nigeria’s sustainable development,” he said.

Expressing confidence in the NGX’s capabilities, Dr. Umaru Kwairanga, Group Chairman of the Nigerian Exchange Group, stated, “We possess the capacity, resources, and technology to raise the funds required by the Federal Ministry of Environment and the Nigerian economy to achieve the goals outlined in the Paris Agreement and the Sustainable Development Goals.”

Access Bank has consistently led climate finance efforts across Africa, demonstrating a strong commitment to sustainable practices and financial solutions. In June 2018, the bank supported the Green Bond Market Development Programme organised by FSD Africa, the Climate Bonds Initiative (CBI), and FMDQ Group PLC, aiming to develop a non-sovereign green bond market in Nigeria. This initiative sought to embed sustainability principles into the Nigerian capital markets and support broader debt capital market reforms for a climate-resilient economy.

In April 2019, Access Bank issued its inaugural green bond, valued at NGN 15 billion (USD 41 million), becoming the first African corporate entity to receive CBI certification. The bond, listed on multiple exchanges, including the FMDQ OTC Securities Exchange, Nigerian Stock Exchange, and Luxembourg Green Exchange, set the tone for the continent’s appetite for green capital. Building on this success, the bank issued USD 50 million in Reg S Step-Up Green Notes in 2022 under its USD 1.5 billion Global Medium-Term Note Programme, further solidifying its commitment to sustainable financing.

The post Access Bank joins forces with NGX to launch the Revolutionary Impact Board appeared first on African Leadership Magazine.

The Tier II Facility Agreement, the largest syndication in FMO’s history, underscores the enduring trust and robust partnership between Access Bank and FMO. Since 2003, their relationship has aimed to foster economic progress in Nigeria, with this latest commitment marking their third significant syndication venture.

The substantial capital infusion comes from a syndicate of Global Development Finance Institution (DFI) partners, including British International Investment (BII), Belgian Investment Company for Developing Countries (BIO), BlueOrchard, FinDev Canada, Finnfund of Finland, Norfund of Norway, Oikocredit, and Swedfund of Sweden. Each partner plays a pivotal role in strengthening Nigeria’s private sector, reflecting a shared mission to drive sustainable economic growth.

The funds are strategically allocated to empower local small and medium-sized enterprises (SMEs), with a particular focus on youth- and women-owned businesses, agricultural enterprises, and very small enterprises. This support aims to bridge gaps in financial inclusion, stimulate business development, create jobs, and enhance trade capabilities.

The signing ceremony, attended by dignitaries such as H.E. Amb. Oluremi Oliyide, Nigerian Ambassador to the Netherlands, and Dutch government representatives, highlighted the significance of this partnership. Roosevelt Ogbonna, MD/CEO of Access Bank PLC, expressed deep gratitude to FMO and the syndicate partners, reaffirming the bank’s dedication to global best practices and high standards of accountability.

“Today marks a significant milestone in our longstanding partnerships with FMOs,” Ogbonna stated. “This monumental syndicate Tier II facility agreement underscores the deep-rooted trust and synergy among our institutions. This facility not only enhances our capital reserves but also strengthens Africa’s trade capabilities and export potential. By deploying these funds, we aim to catalyse growth across various sectors, stimulate business development, create jobs, and deepen financial inclusion, aligning with Access Bank’s mission to drive progress and development throughout the continent and beyond.”

Front row (L-R): Michael Jongeneel, Chief Executive Officer, FMO and Roosevelt Ogbonna, Managing Director/Chief Executive Officer, Access Bank Plc

Back row (L-R): Lisa Sherk, Head of Investment Analytics, Blue Orchard; Antti Partanen, Investment Manager, FinnFund, and Adeola Ukoha,  Coverage Manager Africa, British International Investment 

Michael Jongeneel, CEO of FMO, echoed Ogbonna’s sentiments, highlighting the collaborative effort and shared vision that made this loan facility a reality. “We extend our gratitude to our longstanding partner, Access Bank, and our syndication partners for their outstanding cooperation. The syndicated loan provides significant support to SMEs in Nigeria, particularly underserved segments such as women and young entrepreneurs, aligning perfectly with our shared strategy to enhance financial inclusion and empower local entrepreneurs in the agribusiness and SME sectors.”

This agreement not only marks a historic financial achievement but also sets the stage for a transformative impact on Nigeria’s economic landscape. By focusing on empowering SMEs and underserved communities, Access Bank and its partners are driving a vision of inclusive growth and sustainable development.

As Access Bank continues its mission to become the world’s most respected African bank, this partnership with FMO and the global DFI community underscores a powerful commitment to fostering prosperity and financial inclusion across the continent.

For Access Bank and FMO, this is more than just a financial transaction; it is a shared pledge to uplift and empower, to build and innovate, and to drive a future where economic opportunity is accessible to all.

The post Access Bank Raises N442bn Capital through Syndicated Facility appeared first on African Leadership Magazine.

The Impact of Budget Deficits

Budget deficits occur when a government’s expenditures exceed its revenues. While some levels of deficit can be manageable and even beneficial if used for productive investments, chronic deficits can lead to unsustainable debt levels, inflation, and reduced investor confidence. Many African countries saw their budget deficits widen significantly as they increased spending to mitigate the health and economic impacts of the crisis. The International Monetary Fund (IMF) reported that the average fiscal deficit in Sub-Saharan Africa widened to 6.7% of GDP in 2020 from 4.3% in 2019.

Balancing Budget Deficits During Economic Crises in Africa

Nigeria, Africa’s largest economy, provides a critical case study. The country is heavily dependent on oil revenues, which account for approximately 90% of its export earnings and about 60% of its government revenue. The collapse of oil prices in 2014 and the subsequent recession in 2016 saw Nigeria’s budget deficit surge. In response, the government implemented measures such as the Economic Recovery and Growth Plan (ERGP) to diversify the economy and improve revenue collection.

Another major economy that has also faced significant budgetary challenges is South Africa. The country has struggled with slow economic growth, high unemployment, and large public sector wage bills. During the pandemic, South Africa’s budget deficit widened to 14% of GDP in 2020/21, the highest in the country’s history. To address this, the government adopted a mix of austerity measures and economic reforms aimed at reducing public spending and boosting growth. Despite these efforts, the IMF projected a budget deficit of 6.3% of GDP for 2021/22.

Strategies for Balancing Budget Deficits

Revenue Mobilization: Increasing domestic revenue through improved tax collection, broadening the tax base, and reducing tax evasion. For example, Rwanda’s tax-to-GDP ratio increased from 11.6% in 2000 to 16.5% in 2019 due to concerted efforts in tax administration and policy reforms.

Expenditure Rationalization: Prioritizing spending on essential services and infrastructure while cutting non-essential expenditures. This can involve public sector wage freezes, reducing subsidies, and improving efficiency in public spending.

Debt Management: Managing debt levels through prudent borrowing and seeking concessional loans with favorable terms. For instance, Ghana has successfully managed its debt by negotiating with international creditors and implementing a debt restructuring plan in 2020.

READ ALSO: Top 10 African Countries for Foreign Direct Investments (FDIs)

Economic Diversification: Reducing dependency on a single commodity or sector by promoting diversification. Botswana’s efforts to diversify from diamond mining to other sectors like tourism and services have helped stabilize its economy during downturns in the global diamond market.

International Support: Leveraging international financial support from institutions like the IMF, World Bank, and African Development Bank. During the COVID-19 pandemic, many African countries received financial assistance to cushion the economic impact. The IMF provided over $16 billion in emergency financing to Sub-Saharan African countries in 2020 alone.

The post Balancing Budget Deficits During Economic Crises in Africa appeared first on African Leadership Magazine.

Currency Pegs

Many African countries hold foreign exchange reserves, which they use to support their currencies. This stability helps to maintain confidence in the value of European currencies. According to a local news source, Fourteen African nations, primarily former French colonies in West and Central Africa, use the CFA franc, which is pegged to the euro. This system offers these countries currency stability, backed by the strength of the eurozone.

However, it can also limit their ability to set independent monetary policies. The euro and Japanese yen have seen significant declines against the US dollar in June, due to political turmoil in the EU and the Bank of Japan’s (BOJ) policy stance. The US dollar has strengthened against all other G-10 currencies, with the euro and yen being the weakest among them. The euro’s exchange rate against the US dollar fell to a low of 1.067 in June, its lowest level since May 2024. The Japanese yen has weakened dramatically, hitting its lowest level against the US dollar in 38 years, with a rate of 160 yen per dollar. The yen has also weakened against the euro, reaching an unprecedented level of 171.80 yen per euro.

This decline is attributed to the BOJ’s dilemma in its policy stance, which has caused investors to lose confidence in the currency. However, African countries holding significant foreign exchange reserves provide a boost to European currencies by supporting them with their reserves and maintaining confidence in their value.

Trade Ties

According to Eurostat, from 2008 – 2018 EU-28, international trade in goods between the European Union (EU) and Africa grew. The EU accounted for 36% of exports and 33% of imports; trade between African nations accounted for 15% of exports and 16% of imports. The United States (7%), China (9%), India (5%), and the United Arab Emirates (3%), followed in order of importance for exports. China (13%) was also the third-largest partner for imports, with the United States (5%), India (5%), and the United Arab Emirates (3%).

In 2020, Africa’s share of global trade increased by 10% to reach $1.5 trillion, with Europe being one of its largest trading partners. The European Union (EU) is the largest investor in Africa, with investments worth over $300 billion in 2019.

One of the primary ways Africa supports European economies is through commodity exports. Many African countries are rich in natural resources such as oil, gas, gold, and diamonds, which are essential for Europe’s manufacturing and energy needs.

Africa produces over 10% of the world’s oil and gas reserves, with Nigeria, Angola, and Libya being major suppliers to Europe. Statista asserts that, as of 2023, Nigeria was Africa’s top oil producer. Approximately 74 million metric tons of oil were produced in the nation. Following with outputs above 55 million metric tons apiece were Algeria, Libya, and Angola. The total amount of oil produced in Africa that year including shale oil, oil sands, crude oil, and NGLs was 341.5 million metric tons, which was 2.4% more than in 2022.

According to Metals Focus’ latest estimate, global gold production in 2022 was 3,628t. West African nations such as Ghana, Mali, and Burkina Faso have grown in importance. Gold production in Africa has increased by 20% over the past decade, with countries like South Africa and Ghana being significant suppliers to the global market.

Among African nations, the Democratic Republic of the Congo accounted for the greatest portion of the world’s industrial diamond output as of 2022. About 19.08 percent of the output was produced in the nation. With roughly 16.9 percent and 12.5 percent, respectively, Botswana and South Africa came next. In that particular year, over half of the world’s industrial diamond production came from Africa, according to Statista.

Remittances

African migrants in Europe send billions of dollars back home each year. World Bank data shows that remittance flows from high-income countries to Sub-Saharan Africa reached $48 billion in 2021. These remittances are a crucial source of income for many African families and contribute significantly to African economies.

READ  ALSO: Showcasing Lesotho’s Hidden Gem

It’s important to note that this economic relationship is not without its critics. Some argue that the current system perpetuates a neocolonial dynamic, where Africa remains a source of cheap resources for Europe. Additionally, the currency peg can limit African countries’ ability to set independent monetary policies.

Africa may not be as economically prominent as other regions, but it plays a vital role in supporting European currencies and economies. From commodity exports to foreign exchange reserves and growing consumer markets, Africa’s contribution to the global economy should not be underestimated. As Europe looks to reboot its economic growth strategy, partnership with Africa is important.

The post Is Africa the Unspoken Pillar of European Currency and Economy appeared first on African Leadership Magazine.

The free fall of the naira against the dollar poses a big challenge for businesses engaged in international trade. Fluctuating exchange rates impact the cost of imports, debt service obligations, and overall profitability. The weakened local currency is leading to higher inflation, which affects the purchasing power of consumers and increases the cost of doing business. There are strategies to mitigate the impact of inflation on both operational costs and consumer demand. Financial leaders should identify, assess, and mitigate the risks associated with exchange rate volatility, inflation, and supply chain disruptions. This involves using financial derivatives, hedging strategies, and diversifying currency exposure.

Given the uncertainties, financial leaders should engage in thorough scenario planning and stress testing. This enables companies to anticipate potential outcomes, model the impact of various scenarios, and develop agile responses to different economic conditions. Companies often seek to diversify their sources of revenue to reduce dependence on a single market or product. By exploring new markets, introducing new products or services, or entering different sectors, businesses can enhance their resilience to economic fluctuations.

During uncertain times, companies focus on optimising costs and improving operational efficiency. This may involve reviewing and streamlining processes, renegotiating contracts with suppliers, and leveraging technology to enhance productivity. Adapting to changes in the business environment often requires flexibility in workforce management. Nigerian companies may implement remote work policies, flexible working hours, or temporary workforce adjustments to maintain productivity and reduce operational costs.

Embracing innovation and adopting new technologies can help companies stay competitive and adapt to changing circumstances. This may involve digital transformation initiatives, automation, and the adoption of emerging technologies to improve efficiency and create new business opportunities. Sound financial planning and effective liquidity management are critical during uncertain times. Companies may reassess their budgets, implement cash flow forecasting, and explore funding options to ensure sufficient liquidity for day-to-day operations and strategic initiatives.

Forming strategic partnerships and collaborations with other businesses, industry associations, or research institutions can provide mutual support during challenging times. Collaboration may lead to shared resources, insights, and collective efforts to address common challenges. Uncertain times can lead to the birth of new businesses, even during a pandemic or economic crisis. Entrepreneurs should understand people’s needs, empathise, and build solutions that address those needs. Investors may still find ways to fund companies during uncertain times. Pivoting is an option, but it should be a well-evaluated decision, and historical business models can be imported if they fit the market.

Nigerian businesses are encouraged to be flexible, revisit their strategies, cut costs when necessary, and seek new opportunities during uncertain times. The ability to adapt and make strategic decisions is important for survival and potential growth.

The post Financial Leadership in Uncertain Times for Nigerian Companies appeared first on African Leadership Magazine.