Africa's annual economic growth rate, which reached an all- time peak of 6.8% in 2007, is expected to slow from 5.5% in 2008 to just over 5% this year. This is in line with the rest of the developing world but much higher than in advanced economies, which will do very well not to dip into recession. Oil prices are already only a third of what they were a few months ago, thereby confounding virtually all budgetary plans by producer nations. The danger is that without the oil revenue windfalls, social issues such as education, health, provision of clean water and so on will now be neglected. This means that it will be even more difficult for many African countries to reach anywhere near their Millennium Development Goals. Strong growth in countries like Botswana, Kenya, Ghana, Nigeria, Mozambique, Tanzania, Uganda, Zambia and Malawi in Sub- Saharan Africa was generated by both a growth in exports and in private consumption. Data indicates that private consumption has been the main engine of growth for these economies. With the global slowdown, orders for exports are slowing. As a result, domestic consumption is falling and a drop in production could lead to rising inflation. BUSINESS 122 able to ride out the storm and hang in there until better times reappeared. Planners in both Africa and the advanced economies hoped that the financial storm would blow over fairly rapidly, especially as Western governments were prepared to pour billions into shoring up tottering finance houses. When it became clear that the rot had spread more deeply and widely than had first been anticipated, Western governments went further. Many nationalised their banks and other lending institutions and urged the rest to make credits available to businesses and homebuyers. Most central banks also slashed interest rates. The expectation was that the extra income in household pockets would be spent on the high street rather than put into savings ( the low interest rates would act as a disincentive to save) thereby energising the market and keeping economies afloat. In such a scenario, demand would fall – but not too drastically, and Africa, which depends on the export of commodities for 60% of its income, would not be too badly affected. There was also speculation that capital would flow to the ' safer havens' in Africa, particularly portfolio capital into stock markets and bonds. In addition, it was hoped that the Asian region, including China and India, would continue their upward growth curve and absorb any surplus commodity output from Africa. It was also expected that the demand for African gold and gemstones would rise as increasing numbers of people looked for tangible assets in a period of financial turmoil. It now appears that these projections were too optimistic. Despite all kinds of incentives and stimuli, the global economy remains sluggish at best and people just cannot be persuaded to go out and ' spend, spend, spend'. ... it was hoped that the asian region would continue their upward growth curve and absorb any surplus commodity output from africa What does this mean for Africa? msafiri One of the most serious fall- outs of the economic crisis is that official development aid ( ODI) is likely to be slashed just at a time when Africa needs all the support it can get. In 2007, Africa received US$ 37.7 billion in aid and according to pledges made at the Gleneagles G8 Summit, would have received an additional US$ 25 billion a year by 2010 thus doubling aid to Africa compared to 2004. This is now unlikely to happen and, in fact, aid volumes are already shrinking. In October, the UN's Food and Agriculture Organisation reported that only 10% of the US$ 22 billion pledged earlier last year to help ease food shortages has so far been handed over.
msafiri 36 Q David Leahy is a Partner in Advisory Services at KPMG in East Africa responsible for Internal Audit, Risk and Compliance. KPMG Kenya is a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. With 123,000 people worldwide, member firms provide audit, tax and advisory services from 717 cities in 145 countries. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG IMPROVING RISKMANAGEMENT IN YOUR ORGANISATION promotion 123 W hile organisations already have processes and controls in place to manage risk, it is now time to reassess their risk framework and to make any modifications that are needed to stay current with changing industry trends and organisational needs. These improvements need to address the institution's risks in a more comprehensive manner while enhancing the ability to anticipate risk. KPMG believes organisations need: n An organisational response to assess their risk n An operational response to improve their risk-assessment and risk- management processes n A governance response to improve risk oversight Where do we start? KPMG's approach to enterprise risk management involves: n Creating content. Profiling risks and leveraging existing risk- assessment documents n Creating process. Building and maintaining a dynamic risk- management process. In terms of implementation, we see a five-step approach to managing risks and controls: n Conduct a more comprehensive risk assessment inventory and prioritise key risks. This needs to be led top- down by the MD / CEO to engage the entire organisation. Tone at the top is critical to successful risk management. n Identify and prioritise key financial reporting processes and controls. These include the revenue cycle, closing the books, regulatory compliance and budgeting and forecasting. This step should be led by the FD/ CFO and the controller. understanding of its risks based on insight into its potential consequences. By improving risk management processes, the organisation can better identify who is accountable for managing specific risks, and not only those risks that lie in the financial realm. Strategic, operational and compliance risks may become more visible to the entire organisation. Further, such a view helps educate the audit committee, as well as the full board and its committees, to help them better anticipate and mitigate financial risks. In addition, the collegial process of identifying and prioritising risks facilitates a more integrated, anticipatory and preventive approach to managing risks. As the management guru Peter Drucker observed: " Neither the quantity of output nor the ' bottom line' is by itself an adequate measure of the performance of management and enterprise. Market standing, innovation, productivity, development of people, quality, financial results – all are crucial to an organisation's performance and its survival. Performance has to be built into the enterprise and its management; it has to be measured – or at least judged – and it has to be continually improved." At the end of the day, it is important to have: n A more comprehensive risk assessment and risk management framework. n A risk- based, time- released approach to documenting, self- assessing and testing internal controls over financial reporting as well as key operational and compliance processes. n And a new reporting model for organisations that goes beyond traditional financial reporting models currently in place. n Develop a current- year plan for documenting, self- assessing and testing internal controls. This should be led by the controller and supported by internal audit, with the aim of linking the key risks with the controls that the organisation seeks to strengthen. If the organisation documents, assesses and tests the controls on the 20 per cent of its processes that are linked to the highest risk areas, this will probably cover about 80 per cent of the risks. And the organisation can deal with the other 80 per cent of their processes ( and related controls) by strong monitoring at the corporate level. This focus on the fewer areas that matter most – rather than taking a more comprehensive and less selective view – also creates an opportunity to improve these controls, including addressing gaps and deleting redundancies. n Create a risk committee to look beyond financial reporting risks to the strategic, operational compliance, and regulatory risks. Because the root causes of financial reporting " surprises", as well as other impairments to the institution's reputation, lie in all of those areas. n Link the oversight of risk to the audit committee and individual risks to the audit committee and other committees. So that their insights into enterprise risk and the process for managing risk can be shared at the highest levels. Directors must be able to provide oversight of the most significant and likely risks and the manner in which they are being handled. Key benefits of ERM Improved risk management provides a more explicit, comprehensive and enterprise- wide KPMG believes the risk management of organisations needs to become more integrated, preventative in practice, and anticipatory in approach