Thursday, February 08, 2018 12:33PM / Control Risk
As Nigeria exits the recession of 2017, investor
sentiment across West Africa is likely to experience uplift in 2018. Still,
political uncertainty ahead of Nigeria’s 2019 presidential elections and
on-going security concerns are among the key risks for businesses operating in
the region, says specialist global risk consultancy Control Risks in their
annual political and security risk forecast ‘RiskMap’.
Control Risks’ Senior Partner for West Africa Tom
Griffin comments thus, “2017 has been a tough and turbulent year for businesses
in the region, however with Nigeria exiting recession, and foreign exchange
shortages easing, we see a strong improvement in investor sentiment emerging.
Another major engine of growth will be Cote d’Ivoire, where economic expansion
is projected at around 7% next year. There will be only a handful of elections
in the region in 2018, meaning continuity will largely prevail with policy
decisions having the biggest impact on the business environment.”
“In Nigeria however, although presidential elections
are next slated for 2019, campaigning has already started. The uncertainty that
generates, as well as the need for cash that an election brings, mean that
political instability and regulators whose actions will be difficult to predict
remain among our top risks for businesses in the year ahead.”
Control Risks has identified the following as the key
risks facing businesses in West Africa in 2018:
Business assets and personnel in West Africa will
remain vulnerable to attacks by transnational or domestic militant groups. In
particular, al-Qaeda and its affiliates will continue to pose a threat to
operators in the Sahel, while the oil and gas industry in Nigeria’s Niger Delta
will remain exposed to attacks by domestic militant groups. Failure to resolve
the underlying political and socio-economic grievances at the root of these
movements will see the threat persist in 2018.
As countries in the region, notably
commodity-dependent economies, face growing fiscal pressures, operators are
likely to see regulatory bodies increasingly act as revenue-generating bodies,
strengthening local content provisions, introducing stricter fiscal terms,
reviewing contracts or erratically imposing fines in companies in the hope of
boosting state finances. This will periodically give rise to commercial
disputes, legal challenges, and the need for businesses to engage with
Protracted political and socio-economic grievances
will continue to fuel popular discontent and a desire for regime change in
parts of the region. Cameroonian President Paul Biya’s re-election
bid amid a continued crisis in the Anglophone regions will exacerbate tensions,
while Togolese citizens will continue to protest for the end of the 50-year
Gnassingbé dynasty. Protests will pose security threats to businesses, while
regime changes would prompt major institutional changes and complicate
engagements for operators.
· New sectors,
From Senegal’s offshore potential to Nigeria’s
embryonic mining sector, some countries in West Africa will be making forays
into previously-undeveloped sectors in 2018. Prospective investors need to
monitor closely how government’s ability to oversee these sectors evolves and
what the associated risks around these projects become.
Many of the major risks and challenges businesses face
in West Africa are the on-going practical impediments to day-to-day operations.
Shortages of or difficulties in sourcing fuel, foreign currency, equipment and
skilled labour; the infrastructure deficits that persist in the vast majority
of the region, such as in electricity and transport, will continue to mean higher
costs, higher demands on management resources a tougher capital-raising
environment, and greater uncertainty for businesses than in other regions.
Many countries in Africa, Nigeria and Cameroon among
them, face the prospect of what could become a sovereign debt crisis, a decade
after they followed Ghana’s lead in entering the international bond market. The
problem is driven by high levels of external debt, persistent uncertainty over
the recovery of commodity prices to fund repayments, and borrowing to fund
recurrent expenditure. Countries dependent on oil revenues are particularly
vulnerable to ballooning debt in 2018.
In Nigeria and Ghana, plans to borrow heavily to
finance long-term infrastructure projects will not generate sufficient revenues
in the coming year to finance debt repayments. Amid rising inflation and muted
oil prices, Nigeria’s debt servicing payments – which in 2016 doubled to 66% of
total revenues – are likely to rise further, placing extreme strain on an
already stretched budget. With the government of President Muhammadu Buhari
well over halfway through its term, yet to fulfil many of the promises that
brought it to power and already entering campaign mode, businesses in Nigeria
will remain acutely sensitive to political and operational instability in 2018.