Africa bucks the political risk trend

African countries are doing their own up-ending of the world view

Sociologist Daniel Bell, writing in the 1950s about mid-20th century ideologies, observed, “the old passions are spent.” That turns out to be wrong, as recent political contests for the souls of major western societies shows. The brutal rebellion against liberal values and globalization in major Western democracies is a potent reminder that societal change is a predictable force – constructive change is not.

African countries are doing their own up-ending of the world view, but landing in a surprisingly more positive posture. Last year, Zimbabwe saw something as close to a legal coup as you can get – and suddenly, a place that pretty much everyone had written off is on an all-out charm offensive with Western investors.

In Angola, many were cynical about elections and the transition of political power from a colonial revolutionary leader to his comrade in arms and minister of defense. Yet early evidence suggests that João Lourenço, technocratic general and newly elected president, deserves his corruption-free reputation – almost immediately he pushed back against military cronyism and nepotism.

In Liberia, the winner in the country’s first democratic presidential election invited members of the losing party to join him in a unity cabinet. Africa is full of surprises.

Political risk, once considered purged everywhere but in Africa, is for the third year the primary threat to global trade. But across Africa, the significant political risk for inbound mergers last year was almost exclusively due to the most sophisticated democracy on the continent: South Africa.

South Africa accounts for nearly two-thirds of Africa’s M&A activity by value and about half by volume. Political uncertainty brought inbound deals by volume down 45 percent in the first quarter of 2017 – though measured by value, that activity was up significantly.

The hype about South Africa’s institutional arrangements is proving warranted. This is encouraging and should help the region be more resilient to inward investment at a key moment of global economic alignment.

Between 2004 and 2014, Sub-Saharan Africa became the world’s second-fastest-growing region after Asia Pacific, driven in large part by the voracious demand for natural resources created by China’s rapid industrialization. However, structural changes – the direct result of political shifts toward democratic accountability and good governance – played a critical role.

Applying these trends across broad sections of the continent would be an oversimplification. Among the Eurasia Group’s top 10 global risks for 2018 is rising terrorism in Africa, with the Western powers increasingly distracted by their own domestic politics. Among the best performing economies on the continent, Ethiopia and Rwanda aren’t exactly model democracies. But they are predictably governed and focused on trying to prioritize economic development over political squabbling.

However, in key economies, private markets are growing and thriving. While the decade of growth was not driven by manufacturing, early signs show it may be on the rise, aided again by China’s expanding appetite. Combined with Africa’s technology leapfrogging in areas such as fintech and communications, this might just sustain the continent’s promise as the world’s next major market.

 

Itumeleng Mahabane is a Partner and Head of Brunswick’s South Africa office.

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