Elections pose risks to African investment markets, say analysts

A global risk consultancy and independent global advisory firm, Control Risks, and Oxford Economics, today reported that that elections in African markets can often fuel tensions and raise investment concerns even when such elections are serving to stabilise Africa’s evolving political landscape.

The report provides a comprehensive and up-to-date view of the highly-dynamic business investment landscape in Africa and tracks the evolution of the investment landscape in major African markets.

A release on the latest report monitored by business a.m. indicated that it had become imperative to identify how elections can end prolonged uncertainty, provide legitimacy, and empower existing or new African leaders with the mandates required to push forward with reform or counter-reform agenda.

Commenting on the report findings in the fourth edition of the Africa Risk-Reward Index, Barnaby Fletcher, associate director and analyst at Control Risks, cautioned that people in the continent should “not get carried away by enthusiastic reform promises by assuming that reform-minded ‘strong-man’ leaders can push their way through free of any constraints.”

He pointed out that the real political lesson of recent years was to not under-estimate the strength of counter-reform efforts by existing political structures, as well as the complexity of the undertaking.

While noting that African investment has traditionally been dominated by its big economies the report showed that the long-awaited emergence of intercontinental trade blocs is shifting the balance of power.

Specifically, it explores the huge potential significance of introduction of the African Continental Free Trade Area (AfCFTA) in late May, while raising some concerns about its implementation. It also analyses the significant progress made by regional blocs such as the strengthening East African Community (EAC).

Also commenting on the latest risk index on the continent’s markets, the Chief Economist Southern & East Africa of Oxford Economics, Jacques Nel, said: “The current edition of the index shows a slight increase in reward scores for some of the continent’s largest economies, including Nigeria, Angola, and Egypt, as the economic recoveries in these giants gain traction.

“However, the highest reward potential remains centred in the East Africa region, with expanding services and infrastructure development boosting demand and improving business environments”, Nel added.

The Control Risks analysts also attempted through the report to correct the common misinterpretations of the external influences affecting African economies, stating that Africa is no longer an even battlefield for US and Chinese players as commonly thought.

To support their stance, the analysts noted that current US-Africa totals USD 39bn, while China-Africa represented more than USD 200 billion, the EU-Africa trade remained now over USD 300 billion as well as the surge of interest in Africa from smaller geopolitical players such as Russia, the Gulf states, Turkey, and India.

The Associate Director at the consulting firm, Barnaby Fletcher, explained further: “the standard narrative of US-China rivalry in Africa had always looked like an over-simplification, but is certainly outdated now. China’s engagement with Africa is undergoing a fundamental shift, the US is playing catch-up, and a host of other countries are seeking to expand their influence in an increasingly multipolar landscape.

“Geopolitical objectives are being supported by a flood of development finance, creating both opportunity and competition for private-sector players”, Flecher stressed

The report noted further that Africa remained a desirable investment destination with a young and increasingly urban demographic, a wealth of natural resources, and a proven ability to leapfrog technologies in areas such as telecommunications or finance.

According to the report findings, the growing competition for investment across the continent is helping to promote reform, which in turn encourages greater investment just as diversification in Africa is also translating to success and economies can no longer rely on merely holding the most mineral resources.

In his remarks on this healthy development, Head of Africa Research at Oxford Economics, François Conradie, said the positive trend is real “especially at a time of a trade war, which threatens to further depress Chinese demand for commodities and global demand for oil and gas, dependence on raw commodities exports is a serious weakness for an economy.

“It is for this reason that governments are competing to attract investment capital and firms in order to grow their manufacturing and services sectors, to supply goods and services to the many millions of Africans moving to the continent’s cities,” the researcher added.