Africa’s political environment is stabilizing and the continent’s efforts to integrate regionally continue. Shawn Duthie, Analyst for Africa Risk Consulting, talks to AOP about political risk, regional integration and Africa’s evolving foreign policy.
Speaking broadly, how would you say the political and regulatory risk of doing business in Africa has evolved in the last ten years?
First, in terms of political risk, the recent electoral crisis in Gambia is an important example of the direction of Africa’s long term reduction in political risk. The muscular intervention of the Economic Community of West African States (ECOWAS) to oust Gambia’s Yahyah Jammeh after he first conceded in presidential elections and then refused to leave in early December is a good indicator. It shows an African regional body’s willingness to defend democracy over the unrepresentative military-led dictatorships that blighted and destabilised Africa’s past. ECOWAS has similarly previously intervened in Mali, Cote d’Ivoire and Burkina Faso — setting a precedent for this type of intervention. Since 1990, most countries on the continent have had regular elections, and while the run up to an election prompts a regular short-term spike in political risk and uncertainty, political change by ballot box entrenches Africa’s long-term stability. This is best underscored by the example of Ghana, which recently held its seventh peaceful election since the return of multiparty democracy in 1992. The incumbent, John Mahama, conceded defeat peacefully to Nana Akufo-Addo who took office in January.
Other regional organisations could learn from ECOWAS and its West African members. Neither the Southern African Development Community (SADC) nor the Common Market for Eastern and Southern Africa (COMESA) has shown willingness or ability to intervene in regional politics. And the East African Community (EAC), despite its successes, has also been unwilling to expand its military capabilities. With five elections upcoming in 2017, a major catalyst for change will be how these regional bodies react to elections, particularly in Kenya, Angola and the Democratic Republic of the Congo (though this election is still not guaranteed). Will SADC or COMESA be willing to step in if President Joseph Kabila Kabange refuses to leave, or if violence again flares up after the elections in Kenya? Will the African Union, under its new Chadian leadership; SADC or COMESA speak out against elections if they prove neither free nor fair?
Second, the overall regulatory risk of doing business in Africa has improved tremendously over the past three decades and continues to improve. The regulation of oil and gas, particularly in West Africa, has a reputation for being stable; and after a transfer of power, incoming governments do tend to honour previous contracts. However, in East Africa, Uganda, Kenya and Tanzania are newcomers to the oil and gas sector and have yet to achieve that stability. As an example, Tanzanian president, John Magafuli, entered office promising to end corruption, but has also enacted requirements for mining companies to list 30 percent of their shares on the Dar es Salaam stock exchange; and he faced off with Dangote Cement in December over Kikwete-era agreements to supply natural gas to the company.
One area where oil and gas companies face new risks is in new extra-territorial laws with which they have to comply. The United States government has accelerated its crackdown on corruption by US companies in terms of the Foreign Corrupt Practices Act (FCPA). The United Kingdom enacted its Bribery Act in 2011, which goes further than the FCPA and outlaws third party corruption. Some African countries, such as Kenya, have also enacted their own anti-bribery legislation. However, despite some successes, corruption is still rife in many African states. Business people in Kenya report how, in the run up to elections, corruption has soared. In Mozambique the ‘Tuna Bond’ scandal highlights how deeply entrenched corruption is in the Frelimo government. Companies wishing to do business in Africa should always be aware of the risk factors before commencing any large investments on the continent.
Why is regional integration important for African investment and how can it still be improved?
The idea of regional integration has been a topic for discussion on the continent and among its leaders since independence. There has been some success — the EAC has moved farther than the other numerous groupings, and the recent example of ECOWAS in the Gambia is another example of success. Another successful example of integration is the West African and Central African CFA franc zone, which binds 14 countries in to a common currency pegged to the Euro. The ECA aspires to a common currency to further facilitate trade across borders and cut business costs.
However, in Southern Africa, leaders from SADC and COMESA have generally preferred the appearance of integration more than actually taking the necessary steps towards harmonious policies with other African states. In South Africa, the government’s anti-immigrant policies have acted as a brake on regional integration. The country prefers to develop its position as an emerging economy in BRIC (Brazil, Russia, India and China), rather than than integrate with its neighbours.
But on the whole, integration has been slow and stagnant, despite the many reasons regional integration would be a positive step for African investment. A larger market and a decrease in operational costs and time constraints are standard reasons for integration, but there have also been many studies that show the vast majority of Africa’s economies are not mature enough or are not complementary for meaningful integration to succeed. So what should come first? Should African states wait until their economies fit well enough with others before integration? Or should they attempt to harmonise policies and push forward free trade agreements, such as the proposed Tripartite Free Trade Area linking 26 countries, and allow the markets to adjust naturally to the increased competition? While an interesting question, the unfortunate truth is that it is moot until African governments demonstrate the political will to move from discussion to action.
Several recent global events are sure to impact Africa foreign policy, such as the election of Donald Trump as president in the United States, Brexit, Germany’s presidency of the G20 and the global slump in oil prices. How do you see as the priorities for Africa foreign policy, especially in regards to the energy and oil and gas sectors, unfolding over the next year?
This should be an interesting year for African foreign policies. Africa’s shift towards the East has slowed, due to a decrease of demand from China, though India is looking ready to fill a small part of that. India’s prime minister, Narendra Modi, extended a $10 billion line of credit to African nations in 2015 as India attempts to increase its influence in Africa, though this is still a small contribution compared to the $86 billion in funds China extended to African states between 2000 and 2014.
So will Africa shift back towards the West? The West may not be interested in any attempt by African countries to shift back towards them. Trump’s foreign policy towards Africa is still unclear, though it is likely that unilateral trade deals, such as AGOA, could be in trouble. In Europe, Brexit will will preoccupy the United Kingdom until at least 2019 and until it exits the European Union, it cannot enter into any bi-lateral trade agreements. Europe as a whole seems more concerned with stopping Africa’s migrant flow into Europe rather than increasing investment and trade. Latin American and BRICS trade, which did look promising several years ago, has also declined as Brazil and Russia both struggle with political and economic issues. Africa’s leaders have always been quick to offer political support to one another in international bodies, but now might be the time for African countries to focus on strengthening economic relationships on the continent. Intra-continental trade has always been weak, but as stated above there have been some progress in regards to economic integration. With expanding economies in each part of the continent, the time may be right for African states to focus on strengthening economic relations with other African states.