Breaking News

African firms cut investments as business confidence wanes —Survey

 By Babajide Komolafe

More than half of African businesses reduced investments in capital projects in the first quarter of the year due to gloomy economic outlook and declining business confidence.

AfricaThis was one of the highlights of the latest Global Economic Conditions Survey conducted by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA). The Global Economic Conditions Survey (GECS) is the largest regular economic survey of accountants in the world.

Among other things the survey revealed that 55 percent of African businesses said that they were less confident about the economy, while 61 percent cut back on capital investment.

The report stated, “China’s investment slowdown and the resulting collapse in commodity prices have hit business confidence in Africa hard. In Q1, 55 percent of businesses said they had become less confident about the outlook – well above the global average of 48 percent.

“More firms in Africa than anywhere else (61 percent) were cutting investment in capital projects, and the continent is also the region where businesses have the biggest problems with rising costs and foreign exchange movements, with many of the region’s economies suffering sharp falls in their currencies in recent quarters.

“The region’s largest economy, South Africa, is going through a particularly disastrous spell. President Zuma is under pressure to resign, and a once-in-a-century drought is sending food prices soaring.

“The situation is not much better in Nigeria, Africa’s second-largest economy, where speculation of currency devaluation is mounting and the government is struggling to cope with a collapse in its revenue as oil prices have fallen.”

At the global level, The GECS showed that in Q1 businesses were less optimistic about their prospects than at any other time in the past four years. Almost half of the firms surveyed said that they were more pessimistic about their prospects than they were three months earlier. Less than one quarter had become more optimistic.

It also showed that more than half of firms are either cutting or freezing employment, while only 14% are increasing investment in staff. As many as 42 percent of firms are cutting back on investment, up from 40 percent in Q4 2015. Almost every region saw an increase in the number of businesses cutting capital expenditure last quarter, with North America the most notable exception.

Commenting on the outcome of the survey, “Toyin Ademola, Country Head ACCA Nigeria said, “The economic issues facing the world are not limited to Nigeria, it is the emerging markets more generally that are suffering most from bottom lines being squeezed. Wages are rising rapidly in many parts of the world and businesses are finding it harder to cope as revenues come under increasing pressure. The sharp drop against the dollar experienced by many currencies will also have pushed up costs, making imports more expensive and raising the value of dollar-denominated debts. All these mean that firms in emerging-market economies are very pessimistic about their prospects.”


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.