Investor sentiment across West Africa may experience uplift in the new year, following Nigeria’s exit from recession this year.
Still, political uncertainty ahead of Nigeria’s 2019 presidential elections and on-going security concerns are among the key risks for businesses in the region, Control Risks, a specialist global risk consultancy, has said in its yearly political and security risk forecast titled: ‘RiskMap.’
According to Control Risks’ Senior Partner for West Africa, Tom Griffin, this year has been tough for businesses. He however, said that with Nigeria exiting recession, and foreign exchange shortages easing, “We see a strong improvement in investor sentiment emerging.”
Griffin said another major engine of growth will be Cote d’Ivoire, where economic expansion is projected at around seven per cent next year.
He said there would be only a handful of elections in the region next year, meaning continuity would largely prevail with policy decisions having the biggest impact on the business environment.
In Nigeria however, though presidential elections are next slated for 2019, campaigning has already started.The uncertainty that generates, as well as the need for cash that an election brings, mean that political instability and regulators whose actions will be difficult to predict remain among our top risks for businesses in the year ahead,” Griffin said.
Control Risks in the forecast accessed by The Nation identified terrorism and militancy, irregular regulators and political instability, among others, as key risks facing businesses in West Africa next year. Specifically, it said business assets and personnel in West Africa will remain vulnerable to attacks by transnational or domestic militant groups.
The report said al-Qaeda and its affiliates would continue to threaten operators in the Sahel, while the oil and gas industry in Nigeria’s Niger Delta would remain exposed to attacks by domestic militant groups. “Failure to resolve the underlying political and socio-economic grievances at the root of these movements will see the threat persist in 2018,” it warned.
Control Risks added that as countries in the region, notably commodity-dependent economies, face growing fiscal pressures, operators are likely to see regulatory bodies increasingly act as revenue-generating bodies, strengthening local content provisions, introducing stricter fiscal terms, reviewing contracts or erratically imposing fines in companies in the hope of boosting state finances.
Noting that this would give rise to commercial disputes, legal challenges, and the need for businesses to engage with government stakeholders, the report added that protracted political and socio-economic grievances will continue to fuel popular discontent and a desire for regime change in parts of the region.
It pointed out, for instance, that Cameroonian President Paul Biya’s re-election bid amid a continued crisis in the Anglophone regions would exacerbate tensions, while Togolese would continue to protest the end of the 50-year-old Gnassingbé dynasty.
“Protests will pose security threats to businesses, while regime changes would prompt major institutional changes and complicate engagements for operators,” it warned.
Continuing, Control Risks said new sectors would throw up new risks in the coming year. It said from Senegal’s offshore potential to the country’s embryonic mining sector, some countries would be foraying into previously-undeveloped sectors in 2018. It, however, advised that prospective investors need to monitor closely how the government’s ability to oversee these sectors evolves and what the associated risks around these projects become.
On operational risks, the report said many of the major risks businesses face in West Africa were impediments to operations. It listed some of them to include shortages of or difficulties in sourcing fuel, foreign currency, equipment and skilled labour.
The report further noted that infrastructure deficits that persist in the majority of the region, such as in electricity and transport, would continue to mean higher costs, higher demands on management resources and a tougher capital-raising environment, as well as greater uncertainty for businesses than in other regions.
According to Control Risks, many countries in Africa, Nigeria and Cameroon among them, face the prospect of what could become a sovereign debt crisis, a decade after they followed Ghana’s lead in entering the international bond market. “The problem is driven by high levels of external debt, persistent uncertainty over the recovery of commodity prices to fund repayments, and borrowing to fund recurrent expenditure,” it said.
While pointing out that countries dependent on oil revenues are particularly vulnerable to ballooning debt in 2018, the report said in Nigeria and Ghana, plans to borrow to finance long-term infrastructure will not generate sufficient revenues in the coming year to finance debt repayments.
“Amid rising inflation and muted oil prices, Nigeria’s debt servicing payments – which in 2016 doubled to 66 per cent of total revenues – are likely to rise further, placing extreme strain on an already stretched budget.
“With the government of President Muhammadu Buhari well over halfway through its term, yet to fulfil many of the promises that brought it to power and already entering campaign mode, businesses in Nigeria will remain acutely sensitive to political and operational instability in 2018,” the report added.
