RiskMap 2017. East Africa: Political flux threatens stability of business environment
- 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 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.
- African businesses will remain vulnerable from failing to accord cyber security risk the same value as more established security or political threats
- Better governance has improved the business environment but plain sailing is not assured
- Businesses will respond as Arks (defensive focus on core markets), Sharks (targeting new opportunities) or Whales (becoming too big to fail)
Macro-economic instability fuelled by low oil prices and global economic sentiment will continue to be the main driver of business risks across East 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.
Daniel Heal, Senior Partner for Control Risks East Africa, comments: “Macro-economic and domestic political changes are driving African nations to reinvent 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.
East Africa outlook
The Jubilee Party of Kenya is likely to secure another term in office. However, due to opposition pressure, it is likely the months ahead of the polls will be marked by instability and localised violence in particularly contentious constituencies.
The ruling party Ethiopian People's Revolutionary Democratic Front is expected to retain power through continued repression of opposition forces and the introduction of limited political and economic reforms. Fractures within the coalition will become more visible, complicating attempts at more comprehensive reforms to diffuse tensions and woo back investors.
President Magufuli is expected to continue his austerity and reform programme while showing a growing nationalistic stance, increasing fiscal and regulatory risks to business.
Uganda and Sudan
Growing trends of insecurity and economic hardship will pose challenges to the power of two of the region’s longest standing leaders and have the potential to facilitate a surprise change at the top.
Sporadic acts of terrorism will continue, mainly affecting border areas of Kenya. Attacks under the banner of so called Islamic State are expected to remain opportunistic, unsophisticated and directed at symbols of the state, particularly security forces.
Daniel Heal 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.”