All change…Bad news on political risk in South Africa; better for Ghana and Uganda

The most significant changes across Africa included a downgrading in terms of South Africa, while conditions have improved in Ghana and Uganda, according to the 2014 political risk map produced by broker Aon. In its review, Aon says: “South Africa’s political risks have been increasing as sluggish growth undermines efforts to increase employment and inequality persists on racial and wealth lines. “Still, South Africa benefits from a well-developed institutional framework, including a robust legal system, extensive investor protection and sound macroeconomic management. The business environment is favourable, but government inefficiency, corruption and petty violence hinder the business climate.”hideThe risk map looks at risks globally and African countries were referenced in terms of trends predicted in the 2013 map that came true—stabilisation of political risk in the Middle East North Africa (MENA) region after the Arab Spring; and improvements in Sub Saharan Africa. Contrastingly the prediction of stabilising political risk in western Africa did not come to pass. Of the 22 score changes there were some African countries involved. In downgrades Eritrea moved from high to very high; Swaziland moved from medium high to high; South Africa moved from medium low to medium. In upgrades, Ghana, Suriname and Uganda moved from high to medium high. African countries were also included in some of the trends and changes in risk icons and new risk categories. For example, Eritrea, Namibia and South Africa in exchange transfer risk (ie the delay in repayment of sovereign credit); supply chain disruption in Rwanda; political interference in Mozambique and Cape Verde; risk to doing business as well as banking sector vulnerability in Botswana and Senegal. At the launch of the report in London last week Mike Liu, Director of Country Insights and EM Equity Strategy, Roubini Global Economics, explored divergence widening within MENA and west Africa. He said: “Developments in 2013 have reinforced the relative strength of the richer oil exporting MENA countries of the Gulf Cooperation Council (GCC). Compare this to their north African peers, all of whom have fewer financial resources with which to manage any shocks, they all continue to have higher risk scores across all elements of political risk tracked by Aon.” In terms of Sub Saharan African divergence, he said, there are some improvements in Sub Saharan Africa, notably in Ghana and Uganda which offset deterioration in South Africa and Swaziland, which were both downgraded. “Although Ghana has fiscal overspending and rising inflation, which is weakening its macroeconomic stability, increases in revenues and investment reinforced its already strong political institutions. “Uganda continues to suffer from an overly centralised government and significant human rights issues, the stabilisation of donor finance improved its ability and willingness to pay debts and reduced political interference.” By contrast, he added, political conditions deteriorated, particularly in Swaziland which is being supported by its neighbours financially, and suffered a broad-based increase in political risk and economic strain which added to expropriation risk. South Africa, despite having strong political institutions, is struggling from recurrent strikes, which have become the major means of wage setting, and which weaken the outlook for business and raises financing costs. Meanwhile, scores in northwest Africa (Mali, Mauritania, among others) stabilised at a very low level. Aon said: “We continue to highlight the risk of a further downgrade which has yet to materialise. Global involvement in Mali may have helped to stabilise outcomes, but another downward move is possible there as terrorist groups like Al Qaeda in the Islamic Maghreb continue to operate and in the Great Lakes region (Democratic Republic of Congo, Central African Republic).” Key risks per country Exchange transfer risk, including: Egypt, Eritrea and Swaziland Sovereign non-payment (high or very high): Chad, Congo DRC, Cote d’Ivoire, Egypt, Eritrea, Guinea Conakry, Guinea Bissau, Mauritania, Somalia, North Sudan, Zimbabwe and South Sudan Political violence (very high): Burundi, CAR, Congo DRC, Cote d’Ivoire, Ethiopia, Kenya, Libya, Nigeria, Somalia, North Sudan, Zimbabwe and South Sudan Banking sector vulnerability risk (based on the peril and risk level) or any other non-core risk: Morocco Risk change Six countries worldwide experienced a reduction in political risk including: Ghana and Uganda Nine countries experienced an increase in risk including: South Africa and Swaziland Overall, 22 score changes were recorded in 2013 compared to 25 score changes in 2012.

All change…Bad news on political risk in South Africa; better for Ghana and Uganda

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