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Africa - Navigating risk

The changing face of Africa - How investors are deploying robust tools to manage risk

07/07/2015

Challenged by centuries of cultural bias and a tendency for investors to obsess with perilous downside risks or overhyped prospects, Africa is a continent that naturally polarises opinion.

But as a number of its states exhibit the green shoots of democratic stability (Nigeria’s presidency passed peacefully from one elected president to another on May 27th 2015 for the first time in its history), sustainable growth and rising scores against benchmark indices for business risk, investors are engaging with Africa’s institutions and using a range of legal instruments which secure and protect the opportunities this continent has on offer.

For decades its regions have offered riches largely drawn from natural resources alone, but today’s cycle of growth may be different from those preceding it. While energy and resources remain the dominant assets, dialogue amongst the international investment community has slowly turned towards the creation of infrastructure and industrialisation, building supply chains and creating jobs for African people. The United Nations Economic Commission for Africa 2014 Report pointed to the fact that with very little industrialisation, the continent still managed to deliver 5% annual growth for a decade, but that if it is to rid itself of exposures to volatile commodity prices (five exports account for 64% of the total)1 policymakers should enable much greater global trade in manufactured goods, where its share is a measly 3.3%.

With the macro-economic picture showing positive signs, the regional and country-wide perspective can also deliver hopeful noises. One of the most important measures for international investors, the World Bank’s Ease of Doing Business Index, has reported a quickening of the pace of regulatory improvements across Sub-Saharan Africa in recent years. It indicates that in 2006 a third of Sub-Saharan African economies made improvements to the regulatory climate for domestic firms; however, between June 2010 and May 2011, this proportion rose to 36 out of 46 (78%) governments in the region implementing reforms in at least one of the 10 areas measured by the report.

Observers of the index will acknowledge that there remains some way to go for Africa’s institutions and markets. Most of its economies rank towards the bottom of the World Bank’s list, and powerhouses like South Africa are showing signs of a protectionist agenda. However, one of the key differences between today’s African growth story and historic examples where economies faltered, is the availability of freely accessible data which provides insight into the dynamics of business, regulation, legal oversight and many other factors. With these resources investors can build a more informed picture about essential concerns such as the enforceability of contracts; how simple it is to obtain construction permits and licences, maintain a steady supply of electricity or simply start up a business in the first place.

Africa – navigating risk explores how businesses can best mitigate the specific risks the continent presents and addresses the protection offered by insurance, contractual provisions and international law.

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Africa - Navigating risk
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Authors

Picture of Tim Hardy
Tim Hardy FCIArb
Consultant
London
Picture of Simon Kilgour
Simon Kilgour
Partner
London
Picture of Omar Qureshi
Omar Qureshi
Partner
London
Picture of Bob Palmer
Bob Palmer
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