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Trade and investment continue to present growth opportunities in Africa; however, opportunity and risk often go hand in hand. While certain countries experience the disruptive effects of currency volatility, for others, currency flexibility can be a great advantage. In this episode, Crystal Orderson explores risk management and how these can be mitigated.
RMB Africa Focus Series S2: E5 | Managing Risk in Africa
What was discussed
By properly addressing risks and promoting regional trade, Africa can strive towards sustained economic growth and development.
Currency fluctuations impact the entire African continent. With trade still largely being conducted in currencies of the major economic powers like the US dollar, there are many countries that are facing liquidity constraints. Overcoming these constraints and the need for currency flexibility have been prominent issues for economies on the continent.
Kenya has been gradually implementing currency adjustments, while Egypt has experienced significant devaluations since 2022. Nigeria, Africa's largest economy, aims to unify its exchange rate to address multiple exchange rates and backlogs.
“Currency flexibility was a key demand of the International Monetary Fund for countries to access loans.” - Crystal Orderson
Regional trade integration plays a crucial role in promoting economic co-operation in Africa. ECOWAS, established in 1975, consists of 15 member states with a combined population of around 350 million. The region showcases a notable level of integration, allowing traders to conduct business across borders. Nigeria, Ivory Coast, Burkina Faso, Mali and Ghana are key contributors to ECOWAS trade due to their exports of commodities such as cocoa, rubber and gold.
“I think what's interesting is that East Africa is focusing on developing certain sectors like pharmaceuticals and automotive parts, serving the regional market.” - Crystal Orderson
SADC, founded in 1992, comprises 16 member states with a similar population size. Intra-regional trade within SADC accounts for a significant portion of its total trade, with a focus on sectors like pharmaceuticals and automotive parts to cater to the regional market. SADC has implemented initiatives such as electronic certificates of origin, to simplify customs procedures and reduce trade costs.
“In east Africa, we see hydropower being one of the big players. As the largest economy in eastern central Africa, Kenya is growing phenomenally, despite having to deal with different climate change challenges.” - Crystal Orderson
While regional and continental initiatives are important, individual African countries must develop tailored approaches to address their specific energy needs and available resources. This involves conducting thorough assessments of energy sources, identifying necessary investments and fostering partnerships between the public and private sectors and international development agencies.
Continued investment, collaboration and tailored strategies are essential to achieving a just transition and mitigating the impacts of climate change. As African countries forge ahead, the path towards a greener future requires determination, innovation and collective action.