The last 18 months in African politics have been particularly eventful, with both expected and unexpected turnovers in leadership across the continent. Against a broader global backdrop of political volatility, what do Africa’s shifting sands of democracy hold in store for the continent? Eleanor Wragg reports.


As the dust begins to settle on a remarkably busy period for African politics, there is much reason for optimism. Investors cheered Cyril Ramaphosa’s victory in South Africa’s ruling-party election, with the rand hitting three-year highs against the US dollar after he was sworn in as president in February. The departure from power of Zimbabwean President Robert Mugabe, one of the last of the continent’s so-called ‘Big Men’, following that of Africa’s second-longest-serving president, Jose Eduardo dos Santos of Angola, was heralded as a generational shift. Peaceful transitions in Sierra Leone and Liberia, as presidents stepped aside after hitting their term limits – Liberia’s Ellen Johnson Sirleaf being the first president in her country’s history ever to do so – were seen as auguring well for democracy. Meanwhile, The Gambia upgraded to hybrid democracy from repressive dictatorship with the ouster of Yahya Jammeh, and swiftly rejoined the Commonwealth.


New opportunities

For investors, these political changes bring new opportunities. In Zimbabwe, for example, minister of finance and economic planning Patrick Chinamasa has outlined a 980% increase in infrastructure spending this year as the government targets major projects to revive the economy. The African Development Bank (AfDB) estimates the country’s infrastructure backlog at US$30bn, and financing thus far is coming from China and India, who have, among other deals, agreed to provide US$213mn for airport development and US$310mn for a power plant upgrade, respectively.

Positive political developments coupled with an encouraging global economic backdrop are forecast to push Sub-Saharan Africa’s growth to around 3.4% this year, with Brookings Institution pointing out that half of the region’s economies will see similar or higher growth over the next five years than the rate that prevailed in the heyday of the ‘Africa rising’ narrative between 2000 and 2014.

“Generally speaking, the pattern for economic growth and opportunity is positive for Africa, and I think everyone is quite excited about more and more countries jumping into a metaphorical fast lane, while even the slow lane is starting to speed up a little bit,” says Robert Besseling, executive director of specialist intelligence company EXX Africa.

Indeed, investor mood was buoyant at February’s Investing in African Mining Indaba in Cape Town, with enthusiasm from chief executives of companies including De Beers and Sibanye-Stillwater about political changes in South Africa and Zimbabwe, while new Angolan President João Lourenço’s administration reportedly made a big effort to woo investors at the conference, in a departure from the prior administration’s markedly less welcoming approach.

But, as ever, not all of the continent is moving in the same direction.


Divergence remains the only constant

Central Africa, home to the world’s two longest-serving presidents – Teodoro Obiang of Equatorial Guinea and Paul Biya of Cameroon, remains in the “breakdown lane”, points out Besseling, as commodity exporters continue to struggle with low prices. Average GDP growth for the sub-region is seen at less than half that of the continent as a whole for 2018.

“These countries have not been able to adjust to a volatile oil price and have taken such a big shock over the past few years due to lower government revenues that they are set to struggle with debt repayments and public payroll,” Besseling explains.

Furthermore, there is little in the way of hope for political change as leaders tighten their grip on power. The Republic of Congo’s septuagenarian President Denis Sassou Nguesso – who has ruled since 1979 barring a five-year break in the 1990s – was re-elected in 2016 after amending the constitution to allow him to seek a third term, and Chad’s President Idris Déby looks set to stay on until 2033 under proposed political reforms, despite his pledge before the 2016 election to reinstate term limits. Meanwhile, the Democratic Republic of Congo is in profound political crisis as Joseph Kabila, in power since the assassination of his father in 2001, continues to ignore the constitutional limit to his term, which officially ended last December.

“We are seeing diverging democratic trends persisting across Africa,” says Ronak Gopaldas, director of South African-based risk management firm Signal Risk. Aside from the troubled Central African region, he sees three main narratives emerging, broadly following regional divisions. First is West Africa, which despite a long tradition of political volatility, is now, for the most part, making good progress in democratisation.

“There were peaceful handovers of power in Ghana, in Nigeria in 2015, and even war-torn or crisis-ravaged countries like Liberia and Sierra Leone are handing over power in a peaceful manner to the opposition even though they have very limited institutions,” says Gopaldas.

Southern Africa, meanwhile, is now seeing reformist trends, he says, as liberation parties reinvent themselves to become more responsive to their electorates. “In Zimbabwe, South Africa, Botswana and Angola, ruling parties have replaced their leaders and the heads of state, and effectively they are listening to the electorate and their young populations and cleaning up.”

Over in East Africa, however, it’s a different story. “The region is now experiencing a rise in third termism and autocracy, and that is the disconnect,” says Gopaldas.

For investors, this divergence means shifts in risks. “Planning horizons are different, risk-off events are different, and in countries like Uganda where there are big succession question marks, that creates a bit of concern,” says Gopaldas.


East African project risk

As East Africa’s infrastructure boom continues apace, with a flurry of highway, port and energy construction projects underway, any change in the political environment could have serious consequences for investment.

“Cross-border projects will depend on closer and more effective political co-operation between regional governments, raising political risk vulnerabilities. Increasing focus on local content will present a range of reputational risks for investors around third-party management, and land and community issues will require early and committed engagement from investors to avoid any major operational impact,” says Control Risks’ senior partner for East Africa Daniel Heal in a recent report. While Kenya’s return to political stability in 2018 bodes well for unlocking investment demand, he notes that unpredictable policymaking in Tanzania will continue to present major regulatory risks for international and regional investors.

“President John Magufuli’s grip on power is tightening, and his authoritarian style and erratic approach to legislation will further damage investor confidence. He will continue to use nationalistic legislation in the extractives industry as a way of increasing government revenue and addressing fiscal restraints, presenting a range of regulatory and political risks for investors in the short to medium term.”


Continued uncertainty

Treading with caution is also advised even in regions with a slightly rosier political outlook.

“2018 will see continued uncertainty around political leadership in our Southern African markets. The transitions in Zimbabwe and Angola in 2017, elections in Mozambique in 2018, and factionalism within South Africa’s ruling African National Congress (ANC) once again remind businesses in the region of the importance of gaining a clear understanding of the impact of such uncertainty on their risk environment,” says another Control Risks senior partner for Southern Africa George Nicholls in a recent note.

“The point to investors is that there is no one-size-fits-all approach to Africa. The political contexts in each country are very different. Regionally we are seeing the emergence of trends, but ultimately you need to be quite granular in the way that you assess projects or trade: and given the prospect of a global trade war, that merits further consideration,” adds Signal Risk’s Gopaldas.

Amid what can best be described as a particularly turbulent current global state of affairs, for many, the risk and uncertainty thrown up by the rapidly evolving African political landscape is simply on a par with – or perhaps even less bad than – what is happening elsewhere.

“Political risk is now no longer solely an emerging market phenomenon, and there is a kind of desensitisation where the playing field is almost level,” says Gopaldas.

Indeed, a recent study, How are leading companies managing today’s political risks? by Oxford Analytica and law firm Willis Towers Watson, found that it is the US which now leads the world when it comes to political risk. South African comedian Trevor Noah may have been joking when he likened US President Donald Trump’s behaviour to that of an African dictator, but his view is shared, at least privately, by several analysts, with one commenting: “Can you imagine Trump calling Museveni and telling him that he is out of line?”

“From an African perspective, there is an acknowledgement that there are challenges, but there are also opportunities, and relative to the rest of the world where there are problems everywhere, there is no longer a safe haven,” says Gopaldas. “In a rising tide, all boats are lifted, and if you look at the performance of Africa in eurobonds over the last year, the financial markets pretty much shrugged off the political risk.”

However, he cautions that this came amid a very supportive global economic backdrop, which he refers to as the ‘Goldilocks economy’. “It’s not too hot, it’s not too cold, so it’s favourable for emerging markets. Now if that tide turns and the spotlight focuses on countries, then the countries that have got the combination of bad politics and bad economics are going to be very firmly in the firing line.”


The right risks

Nonetheless, for now, Africa’s opportunities appear to outweigh uncertainty around elections and successions. In a 2018 market insight, Sian Aspinall, managing director of insurer BPL Global, highlights that Africa continues to represent her firm’s largest regional exposure, currently accounting for approximately 18.8% of the portfolio. “This demonstrates that there is a prevailing appetite among insurers for well-structured transactions in economically challenged markets with often difficult political environments,” she says.

As the African political landscape continues to undergo multiple complex transitions, its countries are seeing both some of the biggest improvements in political risk scores and some of the most notable deteriorations, with political change driving economic growth and opportunity in some of the least expected places.

“What was once the slow lane is starting to speed up, and some countries, such as Zimbabwe, have left the breakdown lane entirely. The lanes still exist, but the countries within them seem to be jumping around,” says EXX Africa’s Besseling.

With the world economy currently growing at its fastest pace in a decade, Africa is still rising, and with the political risk environment in its largest economies – Nigeria, Egypt, South Africa and Angola – improving, the outlook for both exports and infrastructure projects looks favourable. Although, as recent months have shown, few things are certain when it comes to politics in the continent.