Nahimah Ajikanle Nurudeen
The latest Global Economic Conditions Survey (GECS) from the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA) has revealed that economic mismanagement and slump in commodities prices are part of reasons for low confidence in Africa’s economy.
The report which shows that global business confidence is at its highest in 12 months, noted that only 45per cent of companies in Africa confirmed fallen confidence in Q3, compared with global averages of 38 per cent respectively.
Toyin Ademola, head of ACCA Nigeria says “Two factors account for the current weakness. The first is the slump in commodity prices, which has hit export incomes, government revenues and investment.
“The second is economic mismanagement in the region’s two biggest economies, Nigeria and South Africa, which has caused growth to slow sharply in both countries. Corruption and political instability have dragged down economic confidence, damaging investment in both countries. In general, two very significant issues to manage in Africa are exchange-rate volatility and rising costs.”
The report finds more respondents in Africa (56per cent) are reporting that currency volatility is causing them problems than those in any other region. A related concern is increasing costs (also a problem for 56% of companies), as currency falls push up the cost of imports.
The report found an uplift in sentiment in other parts of the globe. Business confidence in the U.S. improved for the third quarter in a row and is now at its highest level since Q2 of last year. The recent improvement in confidence coupled with strong employment growth and high core price pressures are all reasons to think that the Fed will resume its tightening cycle sooner rather than later.
The report notes that the investment opportunities index fell to its lowest level since the final quarter of 2012, possibly indicating that uncertainty over the outcome of November’s presidential election is causing companies to put big plans on hold.
Meanwhile, fears that headwinds from the U.K. vote to leave the E.U. in June could spread to the global economy have not been realized, with confidence among U.K. businesses holding up relative to the previous quarter – although it is still low, with respondents reporting a decrease in confidence outnumbering those reporting an increase.
With protectionist sentiments on the rise across many nations, the November presidential election could have a significant impact on whether this improving confidence translates into genuine increases in employment and investment.
Faye Chua, head of business insights at ACCA, said the survey highlights the importance of governments supporting growth and their increasing realization of the limits of monetary policy.
“Over 51% of respondents expected government spending to rise, which has driven global business confidence to the highest point in over a year, Chua said.”
He added, “After years of reduced investments in most Western economies, a combination of falling budget deficits and bond yields is encouraging governments to reach for their wallets. This is good news for business in a continued depressed climate for investment and hiring.”
Chua noted that only 19per cent of firms said they are considering hiring new staff, and only 14per cent were looking at opportunities to invest in new technology.
Raef Lawson, Ph.D., CMA, CFA, CPA, IMA Vice President of research and policy, noted that there are signs of improvement not just in the U.S., but in significant economies, including Brazil and Russia.
Lawson said, “North America is performing strongly in contrast to most other regions, helped by strong employment growth in the U.S. and recovering oil prices fuelling a buoyant mood in Canada with respect to construction and investment. “Meanwhile, confidence in China is at its highest level since 2012, which has had an uplifting effect on many emerging markets. Even Brazil, which has been in deep recession for several years, and Russia are showing tentative signs of improvement.”
Despite improvements in confidence, the world is yet to see it translate into a meaningful boost to hiring and investment.
In every region, there were more businesses planning to cut staff than those planning to hire more.
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