By Elliot Kratt
Africa in 2016, in some cases, will be marked by heightened political risks motivated by economic problems, but in other cases, characterized by improved political environments and reduced risks.
Predicting political risks for Africa’s 54 countries in 2016 is a daunting task. It is easy to perpetuate misleading political risk perceptions about Africa, and so, it is equally important to highlight a number of markets where the political risk outlook is broadly positive.
However, there are two significant and negative overarching trends, continuing macroeconomic instability and increasing political instability, which provide scope for the continued presence of a number of associated political risks such as election violence, regulatory crackdowns, and corruption, to mention a few.
Elections in 2016
The macro-political landscape in 2016 is, to a degree, uncertain. Africa will experience national level elections in 16 different countries: Benin, Central African Republic, Chad, Republic of Congo, Cote D’Ivoire, Democratic Republic of Congo (DRC), Equatorial Guinea, Gabon, The Gambia, Ghana, Mauritania, Niger, Rwanda, Sao Tome & Principe, Uganda, and Zambia.
In most cases, elections will likely be marked by incumbent victories and extended term limits. This is particularly predictable in Chad, Republic of Congo, Equatorial Guinea, the Gambia, and Uganda. 2015 showed us that incumbents continue to wield disproportionate influence in elections through control of resources and electoral commissions. Out of a dozen elections, all but Nigeria’s and Burkina Faso’s resulted in incumbent party victories.
However, a trend is emerging of increasing disillusionment in a number of instances as opposition parties make record gains across the board, highlighted this year in Tanzania’s most competitive elections in history, a power transition in Nigeria and high-levels of opposition ahead of President Yoweri Museveni’s anticipated victory in Uganda’s February 2016 election.
If electorates continue to pivot against unaccountable governments, then problems such as an increased frequency in protests, currently seen in Ethiopia, will persist. South Africa will likely suffer from continued anti-ANC protests; however, with Pravin Gorhan as Minister of Finance, investor confidence and bond yields should help improve economic stability.
In more extreme cases, enhanced polarization between the government and civil society could emerge in countries such as the DRC where, if elections go ahead, there is potential scope for violence affected by and comparable to Burundi’s current crisis. Notably, in the Central African Republic there is a concrete possibility of a re-emerging civil war, or at best, continued violence while in neighbouring South Sudan, peace agreements are unlikely to stop continued civil war.
Economic Instability and Political Risk
Owing to economic problems, tensions between governments and civil societies are likely to increase. A predicted drop in oil prices to around $20 per barrel will harm nascent oil & gas sectors in Uganda, Kenya, Mozambique, Tanzania and a number of other countries. This could facilitate isolated incidents social unrest given peoples’ dashed high expectations of the potentially transformative effects of production, potential job cuts or even displacement.
Furthermore, commodity rich countries, namely Angola, may experience increased political factionalism as sections of patronage networks are cut off due to lack of financing from plunging commodity prices. In turn, leaders are likely to resort to repression in order to maintain political control, such a trend has already emerged, as illustrated by trial of 17 prominent activists including Luaty Beirão.
Nonetheless, continued sovereign bond issuances will mitigate the immediate threat of social unrest and political factionalism. Increasingly popular, Eurobonds provide unregulated cash injections capable of sustaining the corruption which will enable a number of African political systems to function. In the run up to elections Eurobonds may also be used to finance economic well-being and election campaigns. Both these dynamics could in-part explain the DRC’s plans to issue a $1 billion debut Eurobond, although the country is set to expected to enjoy impressive economic growth rates of up to 9%.
Regardless, the lack of revenue available in commodity rich countries will result in continued regulatory crackdowns which could pose problems for investors. This trend is perhaps most recently evidenced in Nigeria by the $3.9 billion fine issued to telecoms company MTN. Collapsing oil prices leading to currency volatility have also resulted in tightened currency controls in Nigeria and Angola (which are likely to continue) and could lead to increased taxes across sectors to help navigate infrastructure deficits which limit economic potential.
Cause for Optimism
Nonetheless, on the whole, Africa is not overtly exposed to the negative implications of commodity price plunges. Countries such as Cote d’Ivoire, Rwanda and Ethiopia, with more sophisticated or diverse economies, are likely to enjoy more persistent economic growth which should broadly be accompanied by political stability. In such markets investors will likely be far less exposed to political risks such as regulatory discrimination, expropriation or destruction of assets.
In Cote d’Ivoire, President Ouattara’s 2015 landslide victory is expected to bode well for the investment climate given his astute economic decision-making. In Rwanda, President Kagame’s recent extended term limit will see him secure electoral victory in 2017 which will entrench stability in the midst of a volatile region. Finally, although Ethiopia is currently experiencing a degree of social unrest, economic growth is expected to continue on a positive trajectory which should help produce a more stable political environment in the long-term.
The Year Ahead
Africa is becoming increasingly complex and diverse. In 2016 there will be – at least – two Africas. The first, potentially fraught with a trend toward increased political risks rooted in macroeconomic instability and the second characterised by encouraging signs of improved business environments driven by positive economic and political fortunes. For investors and businesses, political forecasts in 2016 in Africa point to a pressing need to monitor a broad array of complex political risks alongside the many tantalising opportunities that feature across sectors.