Tuesday, December 13, 2016 01:17 PM / Control Risk
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. Highlights:
• African nations vying to emerge as the commercial gateway for foreign direct investment, offer opportunities but also unknown threats for business
• Macroeconomic factors: low oil price and global economic sentiment will be the primary driver of instability across the continent.
• Internal political uncertainty across a number of key nations will pose a much greater risk to businesses on the continent than the effect of international geopolitics
• African businesses will remain vulnerable from failing to accord cyber security risk the same value as more established security or political threats
• Businesses will respond as Arks (defensive focus on core markets), Sharks (targeting new opportunities) or Whales (becoming too big to fail)
• Better governance has improved the business environment but plain sailing is not assured
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.
Tom Griffin, Senior Partner for Control Risks West Africa, comments: “Macro-economic and domestic political changes are driving African nations to re-invent 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.
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.
West Africa Outlook
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.
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.
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.
Tom Griffin, continues, “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.”