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Rand may benefit from desperate search for yield - economist

Mar 10 2017 15:34
Carin Smith

Cape Town - The rand has done well over the past few months due to a desperate search for yield, according to Dr Edward George, head of Ecobank UK.

"The rand is seen as an option due to the risk appetite of independent investors. South Africa could, therefore, be seen as partial winner in this regard in 2017," George said at GTR Africa Trade Finance Week 2017.

He also thinks the Kenyan shilling will do well.  

Brexit, US President Donald Trump, the US Federal Reserve rate hike and commodity prices all feed into the growth story for Africa, explained George.

He sees growth on the continent mainly in two regional intra-Africa trade hubs: one in West Africa centred on Senegal and the Ivory Coast, and one in East Africa centred on Tanzania. These hubs also contain under-performers like Nigeria.

At the same time, he also sees the southern Africa trade corridor as key on the continent.

"The strong dollar has... led to a slump in commodity prices. The recovery has been weak to average - in my view the new normal for commodity prices," said George.

READ: Rand buckles under dollar strength

He believes a positive factor for Africa is continued growth in what he calls the consumer middle class.

"Informal trade is flourishing across Africa. I estimate true intra-regional trade in Africa is actually about 30% due to informal trade," said George.

"At the same time the trade finance gap remains a challenge."

In his view, disruptive technology - like fintech - is spreading across Africa and this can have a game changing effect. Drones, for instance, are becoming a common tool used for various positive purposes on the continent.

"Mobile phone usage in Africa has also surged, while access to formal financial services has lagged," he said.

"Mobile network operators are driving mobile financial services in sub-Saharan Africa and new financial services providers are disrupting the traditional banking sector."

Examples, he said, are companies like Azuri Technologies, M-KOPA Solar, TagPay and BitPesa.

"These innovative technologies are perfectly designed for the challenges of Africa, for instance the fragmented client base," said George.

"It certainly is not all over for Africa. Digital disruptions especially hold opportunities on the continent."

He used Rwanda as an example of an African country which has embraced the future by using technology.

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ecobank  |  africa  |  sa economy  |  africa economy  |  rand


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