In all the excitement over economic growth in the BRICs countries—Brazil, Russia, India and China—other developing areas of the global marketplace tend to get overlooked. And while the BRICs are making the running no one should take their eyes off the changes that are happening through the African continent.
Two recent reports back this up. The International Monetary Fund (IMF) said that sub-Saharan regional GDP was expected to grow by 5 per cent in 2011. According to the UN’s agency for the built environment, urban growth in Africa is running at a rate that is faster than that within Asia. The IMF report backs up the changes that are occurring. ‘The region’s resilience through the global financial crisis owes much to sound economic policy’, it said and then listed its characteristics: ‘steady growth, low inflation, sustainable fiscal balances, rising foreign exchange reserves, and declining government debt.’
There is little doubt that Africa is also focused on rapidly expanding economies elsewhere. ‘A positive development for the region’s dynamism in recent years,’ said the IMF report, ‘has been the growing orientation of some of its trade towards the fastest growing parts of the world, particularly China and other developing countries in Asia and Latin America.’
This upward trajectory ties in neatly with the G20’s insistence that improving financial reporting within developing economies and regions is an important part of the remit of the International Accounting Standards Board (IASB). Comparable and credible financial reporting has played its part in the strengthening of the story of economic growth.
There is a need to deepen Africa’s capital markets,’ says Jeff van Rooyen, a founder member and CEO of Uranus Investment Holdings, past-CEO of the South African Financial Services Board, former Vice-Chairman, Executive Committee of IOSCO, founding member and former president of the Association for the Advancement of Black Accountants and an IFRS Foundation Trustee. ‘There is a range of things that must be done. One of them is moving away from local accounting standards and adopting International Financial Reporting Standards (IFRSs). There is a need to create an investor friendly environment.’
Simon Ridley, Group Financial Director with Standard Bank Group, agrees. ‘There is quite a lot of challenge in implementing IFRSs in Africa,’ he says. ‘There is also a lot of hard work, but lots of payback in inward investment linked to disclosure and reporting.’
Africa is a vast continent and both the strengths and weaknesses of its implementation of a common form of financial reporting through IFRSs and its institutional strengths and weaknesses vary enormously from country to country, and region to region. The Francophone countries north of the Sahara tend to retain their culture of sticking with French domestic accounting rules. South Africa, by contrast, has been a financial reporting powerhouse with a highly regarded stock exchange in Johannesburg and an impetus in implementing the IFRS for SMEs unrivalled around the world. The countries of eastern Africa are steadily moving towards IFRSs, and to the west an economic giant, Nigeria, is on course for IFRS implementation from January 2012. ‘There is no country resistance to IFRSs anymore,’ says Zubaidur Rahman, Program Manager, Financial Management Unit, Operations Policy and Country Services with the World Bank. But he points to the other obstacles. ‘It is the capacity, the professional accounting bodies, educational institutions, regulators and auditors, that remain the problem.’
‘Africa,’ says Jerry Mutonga, Manager for Financial Management with the African Development Bank, ‘has a wide spectrum of countries and the accounting capacity varies from next to nil in some, to others, like South Africa, with good capacity. For example, the number of qualified accountants in Francophone countries is so limited. It will take years to get to the technical capabilities required. Even with a simplified version of IFRSs they will not be able to comply in the next 10 years. By 2020 they would struggle to comply.’
But it is a question of whether the African glass is half empty or half full. ‘The upside,’ says Mutonga, ‘is that you have countries that are rapidly training accountants and are moving towards a critical mass. For example, Kenya, Uganda and Zambia are all moving up,’ he says. ‘You can see that they are beginning to be a vibrant profession.’
This is the central issue. In Africa there is enthusiasm, but the building up of the critical mass of the means to successfully implement IFRSs and derive the long-term benefits that would follow is the difficulty. ‘Africa has been as receptive as any part of the world to IFRSs, and probably more so,’ says Paul Pacter, Board member at the IASB and pioneer of its IFRS for SMEs. ‘The issue has been more how to ensure good quality implementation rather than persuading the countries to adopt.’ ‘There are often limited resources,’ says Ridley, ‘but once there is a government or business acceptance of IFRSs they are vigorously adopted.’
UEMOA, the Economic and Monetary Union of West Africa, for example, which represents Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo, is on the road to implementing the IFRS for SMEs and has the legal ability to enforce it. ‘The economic and monetary union for West Africa is planning to implement the IFRS for SMEs as law in those eight countries,’ says Ken Creighton, Director of IFRS Content Services at the IFRS Foundation.
The commitment is there. ECSAFA, the Eastern Central and Southern African Federation of Accountants, which represents Angola, Botswana, the Democratic Republic of Congo, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Namibia, Rwanda, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe, is also convinced. ‘The countries in the ECSAFA regions have all agreed to adopt IFRSs and the IFRS for SMEs,’ says ECSAFA chief executive, Vickson Ncube. ‘If you want to go IFRS then you have to go IFRS,’ he says. ‘We agreed that adopting IFRSs was the right thing to do and adapting IFRSs was not the thing to do.’
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