Africa remains a good investment bet, as political risks slowly subside

Investment in Africa remains desirable, despite what can seem to be a challenging political risk environment. Risk managers continue to cite political risk as their number one concern across Africa and say the threats continue to rise. However, a new report suggests the political environment may slowly be improving and should not be considered a hindrance to investment. The fourth edition of the Africa Risk-Reward Index from risk consultancy Control Risks and advisory firm Oxford Economics tracks the evolution of the investment landscape in major African markets, and this year’s edition marks several important and intriguing trends that impact investment strategy across the continent. The authors said the benchmark research recognises that elections in African markets can often fuel tensions and raise investment concerns. “However, it also demonstrates how elections increasingly serve to stabilise Africa’s evolving political landscape,” they commented. It is crucial to identify how elections can end prolonged uncertainty, provide legitimacy and empower existing or new African leaders with the mandates required to push forward with reform or counter-reform agendas. “Do not get carried away by enthusiastic reform promises by assuming that reform-minded ‘strong-man’ leaders can push their way through free of any constraints,” Barnaby Fletcher, associate director analyst at Control Risks, warned. “The real political lesson of recent years is to not underestimate the strength of counter-reform efforts by existing political structures, as well as the complexity of the undertaking, “ he explained. African investment has traditionally been dominated by its big economies but the long-awaited emergence of intercontinental trade blocs is shifting the balance of power. The paper explores the huge potential significance of the introduction of the African Continental Free Trade Area, while raising some concerns about its implementation. It also analyses the significant progress made by regional blocs such as the strengthening East African Community. Jacques Nel, chief economist southern and east Africa for Oxford Economics, explained: “The current edition of the index shows a slight increase in reward scores for some of the continent’s largest economies, including Nigeria, Angola and Egypt, as the economic recoveries in these giants gain traction. “However, the highest reward potential remains centred in the east Africa region, with expanding services and infrastructure development boosting demand and improving business environments.” In the 2019 Standard Chartered Bank Trade20 Index, Kenya comes third as the market with the greatest potential for future trade growth. The global list puts Ivory Coast top worldwide. According to the report: “Kenya’s trade readiness score is particularly high, due to infrastructure and ease-of-doing-business improvements that far surpass most other African nations in our index. “The administration has been successful in attracting external investment for substantial infrastructure development, including renewable energy projects. Improvements in Kenya’s ease-of-doing-business ranking over the last few years have been driven by governmental reforms, including in the areas of starting a business, access to electricity, registering property and protecting minority investors.” Ivory Coast is the market that has most rapidly improved its trade growth potential during the past decade, according to the new research. The Africa Risk-Reward Index also tackles common misinterpretations of external influences affecting African economies. Africa is no longer an even battlefield for US and Chinese players, as commonly thought. Current US-Africa trade totals $39bn, while China-Africa represents more than $200bn, and EU-Africa trade is now more than $300bn, according to the paper. The research also notes a surge of interest in Africa from smaller geopolitical players such as Russia, the Gulf states, Turkey and India. Mr Fletcher said: “Geopolitical objectives are being supported by a flood of development finance, creating both opportunity and competition for private-sector players.” The report stresses: “Africa remains a desirable investment destination with a young and increasingly urban demographic, a wealth of natural resources, and a proven ability to leapfrog technologies in areas such as telecommunications or finance.” It said the growing competition for investment across the continent is helping to promote reform, which in turn encourages greater investment. In Africa, diversification increasingly equals success and economies can no longer rely on merely holding the most mineral resources. François Conradie, head of Africa research at Oxford Economics, said: “Especially at a time of a trade war, which threatens to further depress Chinese demand for commodities and global demand for oil and gas, dependence on raw commodities exports is a serious weakness for an economy. It is for this reason that governments are competing to attract investment capital and firms in order to grow their manufacturing and services sectors, to supply goods and services to the many millions of Africans moving to the continent’s cities.” The authors claimed: “For the less experienced investor in Africa, the index offers a comparative snapshot of market opportunities and risks across the continent – offering critical information for market entry strategies. For the more seasoned Africa investor, the index provides a grounded, longer-term outlook of key trends shaping the investment landscape in major African economies.”

Africa remains a good investment bet, as political risks slowly subside

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