High risks, high re­turns: in­vest­ing in Africa

RISKAFRICA Magazine - - CONTENTS - An­ton Pre­to­rius

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.

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