Welcome to the 2022 edition of Financial Focus, PwC’s industry publication for the financial services sector in the East Africa region. Since the last edition, we have witnessed the beginning of recovery in the financial services sector in the region from the impact of the COVID-19 pandemic. The Kenyan economy, for example, grew by 7.5% in 2021, after a slight contraction in the previous year.
This recovery has however been disrupted by the Russia-Ukraine conflict, which has brought new uncertainties and is causing unprecedented adverse impact on global economies. We have witnessed a sharp rise in the price of energy and commodities, as well as disruptions to supply chains. The US and other major western economies are experiencing the highest levels of inflation recorded in decades, and we are at real risk of global stagflation. Measures taken to curb inflation are likely to result in tightening of liquidity, higher interest rates and contraction of credit growth. Local currencies are likely to be under pressure, which will further add to inflationary strain. This will be a challenging time for financial institutions, and they will have to proactively manage new or elevated risks caused by turbulence in financial markets.
Digitising operations and service delivery continues to be a focus area for many institutions, as they seek to reduce operational costs while improving efficiency in service delivery. In the data driven world that we now live in, we will continue to see financial service institutions investing more in digitisation and adopting emerging technologies.
This Financial Focus edition is presented in a two-part series that shares insights on topics that are relevant to financial institutions across the East Africa region. Many of our financial services clients operate regionally and the contributors to articles in this edition reflect this regional outlook, representing six different countries in the region.
The first article in this series gives insights on what to expect in relation to the Bank of the future in East Africa. In the article, I discuss the trends that are having a profound impact on the banking sector. When it comes to the insurance sector, IFRS 17 will have a major impact on the way insurance companies report their results and measure their insurance liabilities. The standard comes into effect on 1 January 2023. Gauri Shah discusses how insurers should go about their IFRS 17 implementation projects and highlights the pitfalls that they should avoid.
Environmental, Social & Governance (ESG) issues are increasingly becoming key business considerations that financial services players can no longer ignore, as discussed in Edward Kerich’s and Jane Kanyingi’s article. For instance, in Kenya we have witnessed changes in the legislative and regulatory environment with the Central Bank of Kenya (CBK) issuing a Guidance on Climate Related Risk Management and the Nairobi Securities Exchange (NSE) issuing the ESG Disclosures Guidance Manual for listed entities.
In her article, June Kago takes a closer look at Value Creation in the Deals market in East Africa. Companies, including those in the financial services sector, can maximise value in deal making by focusing on three key elements explored in the article.
Cletus Kiyuga shares insights on the impact of Microfinance institutions as a catalyst for economic development and poverty alleviation. Howary Kharbush discusses the new International Sustainability Standards Board (ISSB) and what it means to the future of financial reporting. Crystal Kabwajara explores the transfer pricing aspects of financial transactions on the backdrop of the recently updated OECD Transfer Pricing Guidelines for Multinationals and Tax Administrations, January 2022.
The last two articles revolve around innovation and regulation arising from the evolving business environment and disruptive trends. Joseph Khaemba, Paul Maina and Justice Kimotho share insights on innovation and tax management in the Financial Sector. Lastly, Joseph Githaiga and Jehaan Kassam discuss Data Privacy with a focus on the financial services space.
I hope that you will enjoy reading these articles and find them useful. There are more articles to come in the second part of the 2022 edition of Financial Focus.
Please reach out to me or any of the PwC contributors featured in this publication if you require any clarifications. As always, I welcome your feedback on the publication and suggestions on how to improve it.
