Democracy making Africa risk-free area
Jan 12, 2005
RISK to investors in Africa may be declining as democracy spreads across the continent but analysts say conflict, corruption and poor productivity continue to put off foreign money in the world’s poorest region.
Peter Apps
RISK to investors in Africa may be declining as democracy spreads across the continent but analysts say conflict, corruption and poor productivity continue to put off foreign money in the world’s poorest region.
The nature of the risk itself is also changing, some analysts say, with the military coups and power struggles between the strong men of the past now making way for wider ethnic conflicts that could even threaten Nigeria, seen as one of the region’s rising economic powerhouses.
“I would say things are generally getting better,†Kojo Bedu-Addo, senior African analyst for risk consultant Control Risks Group, told Reuters in London, once the imperial centre that ran much of the continent and through which much investment still flows.
“Governments are beginning to decide that they have to attract investment,†Bedu-Addo said.
A move towards multi-party democracy in many countries, the end of some of the longest-running civil wars, such as in Angola and Mozambique, and growth in anti-corruption bodies and increasing judicial independence were all good signs, he said.
But investors remain very cautious about a continent rich in natural resources and potential but seen by many as a bad business address — and where analysts say some anti-poverty measures such as debt write-offs could actually hurt investment.
“It’s down to the individual countries, but if you want to take a broad sweep I think you’d have to say Africa is generally high risk,†said Peter Bartlett, managing director of Exotix, a specialist broker in emerging market debt.
Analysts say investors who see debt being written off worry they too might be unable to get their money back in the future.
“A lot of the smaller countries have had major debt write-offs, which is anathema to many investors,†Bartlett said.
But at the same time, Bartlett said southern Africa is making strides forward.
Regional giant South Africa confounded some dire predictions to emerge from decades of apartheid as a stable democracy with a rapidly strengthening currency and good economic growth.
Ratings agency Moody’s raised its ratings of South Africa’s country ceilings for foreign currency debt and bank deposits on Tuesday, citing an improving foreign reserves position.
“You also have positive development in Botswana and Namibia and signs of development in Mozambique,†Bartlett said. “As a subcontinent it is beginning to emerge economically and cohesively.â€
Bedu-Addo said that as post-independence military rule was replaced by at least fledgling democracy in many parts of the continent, investors were less worried about losing everything in a coup and more worried about law changes and ethnic strife.
“People are not so much worried about coups and unconstitutional regime change as what individual policies of individual governments will mean for business,†he said.
Some surveys have shown foreign investors put off by South Africa’s Black Economic Empowerment (BEE) programme, which aims to increase the role of black investors in the economy.
“I think we will also see some ethnic tensions that will threaten the viability of the state,†Bedu-Addo said, noting problems in Africa’s most populous and oil-rich country, Nigeria, where divisions exist between Christians and Muslims.
Discontent over some groups being left out of economic growth could also lead to rising tensions, he said.
But analysts expect most of these problems to remain localised. For example, they said there was little sign that tensions in Zimbabwe ahead of elections due in March are putting investors off neighbouring countries.
Corruption remains a major barrier to many countries, and some anti-graft measures simply speed the evolution of the structures of bribery, analysts said. Anti-corruption drives in Kenya have led to a fall in the number of individual bribes paid, but the average value of the remaining backhanders has gone up, they said.
Still, much of Asia, which far outpaces Africa in economic and industrial growth, is also prone to corruption, and many analysts are at a loss as to why African countries still lag so far behind the “Asian tigersâ€.
One British investment
analyst said: “It’s the million dollar question.â€
Reuter
RISK to investors in Africa may be declining as democracy spreads across the continent but analysts say conflict, corruption and poor productivity continue to put off foreign money in the world’s poorest region.
The nature of the risk itself is also changing, some analysts say, with the military coups and power struggles between the strong men of the past now making way for wider ethnic conflicts that could even threaten Nigeria, seen as one of the region’s rising economic powerhouses.
“I would say things are generally getting better,†Kojo Bedu-Addo, senior African analyst for risk consultant Control Risks Group, told Reuters in London, once the imperial centre that ran much of the continent and through which much investment still flows.
“Governments are beginning to decide that they have to attract investment,†Bedu-Addo said.
A move towards multi-party democracy in many countries, the end of some of the longest-running civil wars, such as in Angola and Mozambique, and growth in anti-corruption bodies and increasing judicial independence were all good signs, he said.
But investors remain very cautious about a continent rich in natural resources and potential but seen by many as a bad business address — and where analysts say some anti-poverty measures such as debt write-offs could actually hurt investment.
“It’s down to the individual countries, but if you want to take a broad sweep I think you’d have to say Africa is generally high risk,†said Peter Bartlett, managing director of Exotix, a specialist broker in emerging market debt.
Analysts say investors who see debt being written off worry they too might be unable to get their money back in the future.
“A lot of the smaller countries have had major debt write-offs, which is anathema to many investors,†Bartlett said.
But at the same time, Bartlett said southern Africa is making strides forward.
Regional giant South Africa confounded some dire predictions to emerge from decades of apartheid as a stable democracy with a rapidly strengthening currency and good economic growth.
Ratings agency Moody’s raised its ratings of South Africa’s country ceilings for foreign currency debt and bank deposits on Tuesday, citing an improving foreign reserves position.
“You also have positive development in Botswana and Namibia and signs of development in Mozambique,†Bartlett said. “As a subcontinent it is beginning to emerge economically and cohesively.â€
Bedu-Addo said that as post-independence military rule was replaced by at least fledgling democracy in many parts of the continent, investors were less worried about losing everything in a coup and more worried about law changes and ethnic strife.
“People are not so much worried about coups and unconstitutional regime change as what individual policies of individual governments will mean for business,†he said.
Some surveys have shown foreign investors put off by South Africa’s Black Economic Empowerment (BEE) programme, which aims to increase the role of black investors in the economy.
“I think we will also see some ethnic tensions that will threaten the viability of the state,†Bedu-Addo said, noting problems in Africa’s most populous and oil-rich country, Nigeria, where divisions exist between Christians and Muslims.
Discontent over some groups being left out of economic growth could also lead to rising tensions, he said.
But analysts expect most of these problems to remain localised. For example, they said there was little sign that tensions in Zimbabwe ahead of elections due in March are putting investors off neighbouring countries.
Corruption remains a major barrier to many countries, and some anti-graft measures simply speed the evolution of the structures of bribery, analysts said. Anti-corruption drives in Kenya have led to a fall in the number of individual bribes paid, but the average value of the remaining backhanders has gone up, they said.
Still, much of Asia, which far outpaces Africa in economic and industrial growth, is also prone to corruption, and many analysts are at a loss as to why African countries still lag so far behind the “Asian tigersâ€.
One British investment
analyst said: “It’s the million dollar question.â€
Reuter