Africa still expected to shine in tough political environment

Amid a challenging global outlook, Africa is expected to be an economic out performer in 2020, according to a new political risk report from Marsh. Political risk continually tops the risk list for most risk managers operating on the continent, so the new report should come as welcome news. Added to that, the International Monetary Fund forecasts growth in sub-Saharan Africa to accelerate to 3.5% in 2020/2021, up from 3.3% in 2019. However, the March report warns: “Businesses operating in both developed and emerging markets face a complex and often volatile political risk landscape in 2020. Issues related to global trade will continue, resulting in persistent political and economic uncertainty for businesses.” In broad terms across Africa, March says, while the short-term political risk index (STPRI) scores for Guinea, Mali, and South Africa remain unchanged from 2019, upcoming elections in the region could generate political instability. Rwanda experienced the largest improvement in STPRI score in Africa, reflecting continued economic growth and the stable business environment. “While this year’s Political Risk Map highlights a challenging geopolitical and economic outlook, there are very significant areas of opportunity for organisations that are equipped to navigate the complex and dynamic risk environment,” says Nick Robson, global practice leader, credit specialties, Marsh JLT Specialty. “Developing a sophisticated understanding of the political risks facing their business, alongside political risk insurance, can help firms to manage their exposure and fully realise the opportunities for growth that global trade and investment brings.” However, there are still downsides. For example, risks stem from the continent’s rising sovereign debt load. And west African states will struggle to manage security risks in 2020, as Islamist militants increase activity in the Sahel, warns Marsh. In 2019, deaths in the region due to armed conflict reached their highest figure since 2012, as armed groups took advantage of porous borders and weak regional institutions. In January 2020, in a mark of the escalating violence, 89 Nigerian soldiers were killed in a single militant attack. Insecurity will continue in 2020, says Marsh, despite increased security cooperation and promises of more French troops. Moreover, elections in Togo, Ivory Coast, Guinea, Burkina Faso and Mali could generate political instability. In Ivory Coast’s October 2020 general election, candidates have already invoked north-south regional divides, increasing the risk of election-related violence. South Africa will struggle to significantly boost its economic performance in 2020, despite a government economic recovery plan, while contingent liabilities for state-owned enterprises remain significant. Divisions within the ruling African National Congress are also likely to weigh on reform momentum. Rwanda experienced the largest improvement in STPRI score in Africa, increasing from 64.2 to 68.5. This reflects President Paul Kagame’s dominant political position and policy stability, which supports continued economic growth and a stable business environment. In contrast, Sudan posted the most significant global deterioration in STPRI score, falling to 21.7 from 36.3. Political instability has spiked following the removal of President Omar al-Bashir in a coup in April 2019. A transitional power-sharing agreement was reached between civilian groups and the military, yet tensions between the two will remain elevated in 2020. It remains possible that the military will seek to delay the transition to democracy. Angola Diving deeper into certain countries, Barnaby Fletcher, associate director and leader of the Control Risks analyst team for east and southern Africa, says: “Since his inauguration in September 2017, the scale of President João Lourenço’s ambitions has been remarkable. “The kwanza (currency) has been fully liberalised. Corruption investigations have targeted figures previously thought to be untouchable, such as the children of former President José Eduardo dos Santos (1979-2017).” Added to that, structural changes are challenging vested interests and introducing some transparency in previously opaque sectors such as oil and gas. Mr Fletcher adds: “[The president’s] future plans are even grander, foreseeing a completely restructured economy in which previously all-powerful, state-owned companies would be brought to heel by newly formed regulators. A total of 195 state-owned entities are due to be wholly or partially privatised by 2022.” There are significant challenges and the pace of change has slowed, however. He points out how privatisation plans have been long discussed but remain unimplemented, amid a lack of administrative capacity and opposition from influential figures who view SOEs as a vehicle for patronage and maintaining political influence. “The aborted attempt to issue a new telecommunications operator licence in April highlighted the continued pervasiveness of high-level corruption. Economic problems remain severe; 2019 looks set to be the fourth consecutive year of recession,” he notes. However, Mr Fletcher says: “For all that international investors have welcomed President Lourenço’s reforms, these challenges mean risks remain. Whatever the long-term necessity of fiscal and monetary reforms, the short-term economic pain caused is fuelling anger that is manifesting in rising unrest. “There is growing disquiet over the perceived witch-hunt of Mr dos Santos and his family. If President Lourenço does not deliver economic recovery soon, opinion – both among voters and within the ruling Popular Movement for the Liberation of Angola – will turn against him, derailing the reform agenda and potentially raising risks of political instability.” Overall, Control Risks remains positive about Angola’s longer-term outlook. “President Lourenço’s reforms are sensible and investors are showing increasing interest. There are no obvious challengers to Mr Lourenço’s authority and the economic and political drivers behind his reform agenda are likely strong enough to ensure they continue. “But this optimistic outlook cannot be guaranteed, and developments in 2020 will be critical in determining whether it is accurate,” concludes Mr Fletcher. Ethiopia Control Risks has also taken a hard look at Ethiopia this year, with analyst Patricia Rodrigues saying: “The sense of euphoria that characterised Prime Minister Abiy Ahmed’s appointment and accompanying economic and political liberalisation agenda has faded somewhat in the past year. “Instead, in 2020, Mr Abiy will be faced with the difficult task of uniting Ethiopia in advance of the legislative elections that are currently scheduled for May, and in their aftermath. He will be required to counter the growing popularity of ethno-nationalist parties that have been calling for more autonomy to be granted to ethnic groups and their respective regional states.” Ms Rodrigues also suggests: “He will need to unite a ruling coalition that is deeply divided over the shift away from a state-led approach to economic development and the opening of the political space. “While the ruling coalition and its allied parties will benefit from their access to the state apparatus to secure their majority in parliament, the election period will be tense. Further incidents of political violence are likely amid heightened tensions and the inability to demobilise several ethnic militias.” However, although the political distractions will attract the most attention, Ms Rodrigues says the country’s economic potential should not be understated. “Economic growth is anticipated to be one of the highest in Africa in the year ahead. In addition, the administration’s push to open strategic sectors – telecoms, energy, aviation and logistics – is set to continue, as is the government’s intent to improve infrastructure.” And looking to the future, she says that the Prime Minister is working hard to create an environment into which investors will want to invest. “All of this will allow investors to enter and serve one of the largest internal markets on the African continent. Although bureaucratic reforms in the wider administration will take some time, investors are likely to find a government keen to support their activities in the country,” she believes.

Africa still expected to shine in tough political environment

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