High risks, high returns: investing in Africa
The climate in sub-Saharan Africa is looking positive for investors in 2013, but the continent continues to battle civil conflict, a recent rise in terrorism groups and resource nationalism.
The 30th annual RiskMap report, published by independent global risk consultancy Control Risks, reveals that sub-Saharan Africa remains, to some extent, insulated from the developing world’s dominant austerity agendas. However, 2013 will see increased scrutiny of the continent’s internal geopolitics.
The RiskMap report is compiled from the company’s primary services, which includes anticorruption audits, consultancy and training, political risk analysis and its broad range of security and crisis management support. Operating from 34 offices, Control Risks has helped some of the most influential organisations in the world to understand and manage the risk of operating in complex or hostile environments.
risk and opportunity
Joanna Turner, associate director, Control Risks subSaharan Africa global risk analysis, says that thanks to high growth rates across the continent, Africa’s investment climate is looking very positive for 2013.
“This year, growth rates range from 3.2 per cent for the more diversified, bigger economies to 7.9 per cent for the countries that we call ‘resource lions’, such as Mozambique, Liberia, Tanzania and Ghana,” says Turner.
These markets are offering much higher rewards for investors than in Europe and North America, and Africa continues to see a diversification across different sectors such as retail, infrastructure, transport and telecommunications.
While the growth story remains positive, several complex political, operational and security challenges face investors across the continent. “While we have seen a downturn in political violence since 2002 when civil war was raging across the continent, there has been an increase in regional insurgencies and militancy,” notes Turner.
In 2012, the coup in Mali took investors by surprise. After 21 years of democracy, Islamic rebels created a situation of political instability. “While we are confident that the international intervention will return stability to the country over the short term, concerns about the broader regional stability for investors in countries surrounding Mali remains, and we will be watching it very closely in 2013.”
A rise in terrorist groups, such as Boko Haram in northern Nigeria and Al-Shabaab in Somalia, means Control Risks expects some isolated incidents in 2013. “A new rebel group, M23 in the DRC, is adding difficulties in an already complex environment where some of our mining clients are struggling to operate,” comments Turner.
What to watch
There are several key issues which Control Risks will monitor closely in 2013. “The elections in Kenya and Zimbabwe later this year are expected to be a close-run race. Tensions are likely to run high and we are expecting some small-scale violence, which may affect investors operating in the country,” Turner commented earlier this year.
In March, violence flared up in Kenya just days before the polling stations opened for their national elections. In Mombasa, at least four police officers were butchered with machetes in an overnight attack that authorities believe was carried out by a coastal separatist group, forcing some western election observers to retreat to their hotels due to security reasons. Nearly 100 000 police officers were deployed during a tense presidential election in which a record-breaking 12 million people voted.
In terms of regulatory changes, the muchawaited Petroleum Industry Bill (PIB) in Nigeria is due for 2013 and will hopefully provide clarity for investors. “We do have concerns over the implementation of the bill and whether it will actually be passed in 2013,” says Turner. The PIB will not only eliminate corruption, but it will put an end to gas flaring and take care of the problem of environmental degradation in the Niger Delta region of Nigeria. Finally, it will create a balanced financial environment for would-be investors in the hydrocarbon sector of the Nigerian economy.
The PIB has been 12 years in the making. It was first introduced in 2000 as the National Oil and Gas Policy (NOGP) and has survived three regimes led by presidents from the same party. The price of oil in that period averaged $67 a barrel, with wide fluctuations in the same period.
Another trend that Control Risks is keeping a close watch on is Africa’s growth in resource nationalism. Several mining codes and contracts in Guinea, DRC and Mozambique came under review last year. Turner says that as more of these countries look into contracts that have already been issued, concerns over growth in resource nationalism continues to grow.
Turner describes Mozambique as the “rising star” of Africa. Having recently returned from an international investors’ conference in the country, she is confident that while Mozambique’s oil, gas and mining spark primary interest, investors can certainly look to diversify across the country’s economy. “Investors from across the globe attended the conference and were looking at various sectors like tourism, infrastructure and agriculture. The main challenge for Mozambique will be making sure that it does not focus only on resource growth, but sustained growth across the country and poverty reduction. Mozambique is my investor’s pick for 2013.”
As more and more companies, including several insurers, are planning to expand their businesses throughout West and East Africa, the political and security risks will be monitored very closely. Old Mutual is the latest insurer that announced that it wants to scale up its life business in Kenya and use it as a hub for expansion in East Africa. Guardrisk, a unit of Alexander Forbes, says that many of its South African clients are looking for expansion opportunities across the continent.
Another positive for Africa’s investment climate is the establishment of the East Africa Stock Exchange (EASE) later this year. Based in Rwanda, the EASE aims to increase regional market efficiency and liquidity as well as give the region’s population of 130 million, especially smallholder farmers, better access to markets. The exchange will initially focus on establishing an auction facility and spot trading for agriculture and non-agriculture commodities, but will also develop futures trading across East Africa.
In Mombasa, at least four police officers were butchered with machetes in an overnight attack that authorities believe was carried out by a coastal separatist group, forcing some western election observers to retreat to their hotelss due to security reasons.