Navigating the Business Environment in Africa under the “New Normal”

LAGOS (Capital Markets in Africa) – Macro-economic instability fuelled by low oil prices and global economic sentiment will continue to be the main driver of business risks across West Africa in 2017. Governance improvements and the embedding of certain democratic practices and norms will limit the scope of potential for deterioration, but challenges will still persist. Cyber-attacks are advancing in nature. Businesses will become increasingly vulnerable until the impact of cyber risks on their operations and reputation is as well understood as the effects of political and security risk. These are some of the key themes from the annual political and business risk forecast “RiskMap 2017”, published by Control Risks (www.ControlRisks.com), the specialist risk consultancy.

Companies will pursue different strategies to protect value and seize opportunity in 2017. Many organisations will be defined as Arks, Sharks or Whales by their response. 

• Arks will be defensive and focus on core businesses and markets. They will shed non-performing assets, reverse unsuccessful mergers, cut costs, and delay expansion. While particularly associated with mining and oil and gas due to the collapse in commodity prices, the Ark strategy also characterises retrenchment by retailers and re-shoring by manufacturers.
• Sharks are less risk-averse and will hunt for opportunities in new activities and locations. Financial services facing regulatory uncertainty and the rise of competing power centres in the emerging world is likely to take on risk to capture first-mover advantages in frontier markets or disruptive sectors.
• Whales will take advantage of their deep pockets and cheap financing to engineer mega-mergers and monopolise markets. Their main risks are economic nationalists and competition regulators. Consolidation strongly characterises the technology sector, pharmaceuticals, and agribusiness, which have often arbitraged regulatory environments to gain dominant market positions.

Macro-economic and domestic political changes are driving African nations to reinvent themselves in the hope of becoming Dubai or Singapore style commercial hubs. This will present lucrative new opportunities for business, but equally engender unknown risks and require a deeper understanding of the local political and regulatory environment.

Furthermore, for businesses to succeed in this diverse region, it is important to take a threat-led approach and understand the unique and evolving risks that could impact the business in that specific market.

East Africa outlook
Kenya: The Jubilee Party of Kenya is likely to secure another term in office. However, due to opposition pressure, it is likely the months ahead of the polls will be marked by instability and localised violence in particularly contentious constituencies.

Ethiopia: The ruling party Ethiopian People’s Revolutionary Democratic Front is expected to retain power through continued repression of opposition forces and the introduction of limited political and economic reforms. Fractures within the coalition will become more visible, complicating attempts at more comprehensive reforms to diffuse tensions and woo back investors.

Tanzania: President Magufuli is expected to continue his austerity and reform programme while showing a growing nationalistic stance, increasing fiscal and regulatory risks to business.

Uganda and Sudan: Growing trends of insecurity and economic hardship will pose challenges to the power of two of the region’s longest standing leaders and have the potential to facilitate a surprise change at the top.

Somalia: Sporadic acts of terrorism will continue, mainly affecting border areas of Kenya. Attacks under the banner of so called Islamic State are expected to remain opportunistic, unsophisticated and directed at symbols of the state, particularly security forces.

Outlook for Southern Africa
Angola: Angola is set for a new leader in 2017 for the first time in 39 years. A long-anticipated transition will need to be carefully managed to navigate the country through macroeconomic turbulence driven by the continued dependence on oil revenues and to-date ineffectual efforts at diversification.

South Africa: In South Africa President Zuma will face his greatest challenge yet at the ANC conference in December and Control Risks anticipates Deputy President Cyril Ramaphosa to replace him as head of the party.

Zimbabwe: Change is expected at the top of ZANU-PF in Zimbabwe, with Emmerson Mnangagwa most likely to succeed Robert Mugabe as President during the course of 2017.

Democratic Republic of Congo: The issue of succession will be felt acutely in the Democratic Republic of Congo, where the end of President Joseph Kabila’s second term in December will usher in a period of uncertainty in 2017. A highly contested transition, with no clear timeline for future elections, will carry high risks of violence and is generally likely to prove detrimental to the business environment.

West Africa Outlook
Nigeria: President Buhari’s rising unpopularity will place the APC under increasing pressure and without a bounce in the oil price, fiscal and sovereign risks will persist. Nigerian prospects will continue to be weighed down by the economic challenges of low commodity prices. Militancy in the Niger delta is expected to continue at the same pace as 2016.

Ghana: Key macroeconomic reforms to address concerns over the high level of public debt, and investments in major infrastructure projects to alleviate the long-running energy crisis are expected to be the focus for the new administration, the New Patriotic Party (NPP), led by Nana Akufo-Addo. Anti-corruption will take a central focus including the introduction of legislation to tighten public procurement processes and to increase transparency in investment deals.

Gambia and Guinea-Bissau: Economic and institutional reforms vital to attract investment will continue to be frustrated due to significant political instability of a number of incoming governments in smaller countries in the region.

Mali and Burkina Faso: Intensifying rivalry between al-Qaida and Islamic State will put both frontline states once again on the back foot, as they struggle to form an effective response to terrorism in the region.

Cote d’Ivoire: A continued focus on economic growth and an investor-friendly regulatory regime will sustain investor confidence and a rise in private investment. But longer term concerns around the stability of the business environment particularly regarding corruption and political succession beyond 2020 will persist.