The African continent continues to expand and is receiving increasing focus from investment houses worldwide. The myriad untapped resources and economic opportunities provide many areas for potential frontier market investments. With such a large and diverse range of countries there are many key elements that drive the economic success of the continent. In evaluating investment decisions in Africa there is a constant concern as to the political risk and how that may affect economic prospects. Political risk stems mainly from the government in control and in light of this Africa is experiencing a busy period of elections from 2012 through to 2015. Below is a summary of these elections for some of the larger economies.
In 2013, Kenyan polls resulted in Uhuru Kenyatta, a member of the National Alliance, being declared president despite the suggestions of irregularities in the vote. Ironically Kenyatta had been implicated by the International Criminal Court for crimes against humanity in the 2007 post-election unrest. There were also concerns of violence after the elections similar to the unrest after the 2007 elections. However, the peaceful outcome served to increase investor confidence. Real GDP is predicted to grow by 6.1% in 2014 and 6.2% in 2015 with growth opportunities stemming from increased demand for Kenyan goods by other East African countries and the strong trade relationship with China. Threats to this growth may, however, arise from ethnic fragmentation issues or the threat of attacks from Somalia due to the presence of Kenyan troops in the troubled Somali region.
Libya has experienced a great deal of instability recently largely led by the military campaign in 2011. The political situation has remained volatile and is expected to continue in 2014 as various parties compete for control of its vast resource wealth with general elections set for August 2014. Forecasted real GDP growth rates reflect the instability, with growth expected to be -7.4% in 2014 and then 32.1% in 2015. The 2015 figure is based on expectations that there will be a recovery in the oil sector and this will fuel growth. A key risk faced by Libya is the potential lack of jobs in the non-oil economy particularly given the increasingly more youthful population growth. Other key factors affecting Libya’s growth include the security environment within the country given the risk of rebel forces and the state of the utilities sector.
Like Libya, Egypt has faced a tumultuous period regarding political leadership in the country over the recent past. In 2011, then President Hosni Mubarak was ousted and replaced by the Muslim Brotherhood’s candidate Mohammed Morsi. However, Morsi’s presidential reign didn’t last long as he was ousted by the military in 2013 led by Abdel Fattah al-Sisi. Al-Sisi is now a popular choice for President in the upcoming 2014 elections given that he has quit the military and announced he would be running for the position. These changes have resulted in Egypt starting to shift from an authoritarian style of leadership to more of a democratic system for the first time in history. The military played a key role in ensuring stability when Morsi was removed and this has served as a vote of confidence in al-Sisi. It is expected that political risks are likely to decline to some extent and the government is set to detail an ambitious reform programme with the hope of improving investor confidence and addressing public finance issues. Real GDP forecasts for 2014 and 2015 are 2.7% and 4.2% respectively. A return to a somewhat calmer and more peaceful political system is encouraging for business and the economy as a whole.
Nigeria has faced recent problems of its own with the defection of 37 members of the ruling People’s Democratic party to the opposition All Progressives’ Congress. With elections looming in 2015, current president Goodluck Johnathan needs to restore confidence by addressing this issue. Given the party defections, economic growth is still expected to be relatively favourable with growth in real GDP of 7.0% and 6.9% in 2014 and 2015 respectively. Some of this growth is said to result from expansion in non-oil sectors, which is encouraging for an economy that is heavily reliant on oil-based revenue. Given the positive economic outlook there are still some inherent risk factors that include oil price volatility, whereby lower prices could hinder growth. There is also a worry of civil unrest with President Johnathan indicating his desire to run for presidency again and the militancy threat in the Niger Delta. Given these concerns, Nigeria still remains one of Africa’s most underinvested economies and this provides an ideal opportunity for foreign investors.
Ethiopian economic policies have remained largely unaffected since the death of the then Prime Minister Meles Zenawi in 2012 with Hailemariam Desalegn residing since his death. Real GDP growth is expected to be 6.5% and 6.3% for 2014 and 2015 respectively and the main drivers of this are public investment in infrastructure and agriculture as well as a burgeoning consumer market. There is still some concern over who will follow as the long-term successor to Zenawi when Ethiopians go to the polls in 2015. Another important risk to consider is that of Ethiopia’s susceptibility to volatility in global markets most notably linked to commodity prices and the effect this has on coffee and gold exports.
Tanzania is another country with upcoming elections taking place in 2015 with some concerns over ministers underperforming, corruption and succession. However, growth is forecasted to be around 7.1% in 2014 and 7.2% in 2015. Economic growth is driven primarily by the large deposits of offshore nascent gas which will result in increased investments while this is expected to be tempered slightly by rising imports of capital goods. Some of the risks to economic output stem from weather patterns and their effect on food production and protests against investment projects, which is deterring investors. Overall, the view is very bullish given the large deposits of gas available.
Considering the above, it is evident that growth prospects in Africa are still very promising for investors. However, it is important to understand that each country has its own inherent risks and economic policies that are unique to that country. The diverse nature of the African continent means it offers many different investments opportunities, each with their own challenges, which require thorough research. The outcome of upcoming elections and the implementation of economic reforms by newly elected governments will be key determinants of growth opportunities going forward. The fact remains that Africa is rising and offers exciting investment opportunities.
– Craig Metherell
Analyst, RisCura Fundamentals