The very mention of Africa raises the hackles of most risk-averse European and US business executives. The “dark continent” conjures up images of robber-presidents, war, pestilence and a concentration of man's inhumanity to man. Widely viewed as the world's least politically stable and poorest continent, Africa is also seen as the most difficult region in which to do business, a sentiment supported or led by the competitive, time-pressed and resource-shy international media. Earlier this year The Economist magazine published a cover issue entitled “The Hopeless Continent” that reinforced the widely-held business sentiment that Africa, particularly sub-Saharan Africa, is irredeemable.
However, this Afro-pessimist view does not stand up to broader political risk analysis.
Control Risks' recently-published Risk Map 2001 ranks political and security risks on a five-point scale from “insignificant” to “extreme” risk. Sub-Saharan Africa as a region does not come out of the detailed political risk assessment process too well and for the past three years has had more “high” and “extreme” risk areas than any other region.
That said, out of 44 sub-Saharan countries only Sierra Leone and Central African Republic (CAR) carry both “extreme” political and security risk ratings - in other words a clear “don't go there” message to international business. Moreover, only five countries feature in the “high” risk category, namely Angola, Burundi, Congo-Brazzaville, Congo-DRC and the most recent addition, Zimbabwe. Although it is possible to do business in “high” risk countries and areas, the rating raises a flag to businesses that significant additional steps need to be taken to mitigate the risk to their operations.
That leaves 17 countries on the continent which offer “low” or “insignificant” risk ratings to business. Both ratings present a green light to international business. Not all of these lower risk countries - which include Cape Verde, Madagascar, Senegal and Benin - offer much to overseas investors. However, a significant number of them do, particularly South Africa, Namibia, Ghana, Mali, Gabon, Mauritius, Tanzania, Uganda, Tanzania and Zambia.
Fifteen and more years of economic liberalisation have realised opportunities for international business in several sectors in these countries ranging from mining and mining services, and oil and gas, to agriculture and financial services.
Africa in transition
Africa is in the midst of fundamental political change from autocratic one party or dictatorial rule to more-or-less representative rule. The post-colonial era in sub-Saharan Africa - which was characterised by rule by the elite for the exclusive profit of the elite - is almost over.
But political change in Africa cannot be viewed in isolation. Globalisation, an explosion in international travel and the information revolution (satellite television, internet and mobile telephones) have shrunk the world, reduced the diversity of political systems and sped up political events and popular responses to them. In October 2000, for example, news coverage events in Belgrade played a significant part in the ousting of Ivory Coast's military ruler, General Robert Guei. Nor should Zimbabwean President Robert Mugabe's opponents invoke surprise when they start calling him the Milosevic of Africa and urge mass protest to oust him.
Meanwhile, the international corporate world has entered a fresh phase of consolidation. New multi-billion corporations are without nationality and are borderless. Their objective is to increase shareholder value year-on-year by cutting costs, often through international diversification. What these corporations are looking for is broadly liberal economies, limited government involvement in economic affairs, skilled but cheap labour and reasonable infrastructure - notably communications infrastructure.
Democracy rules OK
In the New World Order since the collapse of communism, democracy has become the dominant political system. Some 120 countries now claim to be democracies compared to one (the US) at the turn of the last century. Anachronistic monarchies like Swaziland's are no longer tolerated. South Africa's trades unions are working closely with Swazi unions to press the monarchy to reform and the US has excluded Swaziland from provisions in the recently-enacted Africa Growth and Trade law.
Democracy in Africa is still in its infancy, but it slowly gains in strength as politicians and the voting public become accustomed to exercising their new rights.
Significant evidence of maturing democracy is evident in Senegal, Ghana and Zimbabwe. In the first pluralist elections in each of these countries, the opposition parties urged their supporters to boycott elections because ruling parties failed to present a level playing field. The result in each case was several more years in the political wilderness. Second time around in Senegal, the opposition coalition supporting Abdulaye Wade ousted the incumbent. In Zimbabwe, it is widely agreed that if elections had been free and fair, the Movement for Democratic Change (MDC) would have won a parliamentary majority. Although in Ghana the opposition has a long way to go to challenge the organisation and strength of the ruling National Democratic Congress (NDC), it at least has a loud voice in parliament.
South Africa has moved rapidly, holding two general elections and successfully and peacefully changing leadership under its 1996 constitution. Other countries which have had second-round election successes are Tanzania (with the notable exception of semi-autonomous Zanzibar), Mozambique and Senegal.
However, the extension of Namibian President Sam Nujoma's term by the ruling SWAPO party raised fears that other countries - notably Ghana and Zambia - would follow suit and undermine fledgling democracies. This has not occurred and President Jerry Rawlings is preparing to step down after elections in December. A similar picture is being played out in Zambia. In Namibia, meanwhile, although SWAPO has a two-thirds majority in parliament and is therefore able to change the constitution, the fact that Nujoma pushed for a third term has increased local and internal SWAPO opposition to him. A fourth term looks highly unlikely.
New generation of leadership for a new generation
With the exception of Gabon's Omar Bongo, Togo's Gnassingbe Eyadema, Kenya's Daniel arap Moi and Zimbabwe's Robert Mugabe, elections have removed most of Africa's corrupt and corrupting “Big Men”. The old order has been replaced by a new generation of leaders more in touch with the democratic, social and economic aspirations of Africa's post-independence generation. In South Africa, the new generation leadership is equally in touch with the demands of globalisation, of transnational business and of the New World Order.
Recent events in the Ivory Coast provide an example of the new confidence of the voting public. President Henri Konan Bedie used his presidency to manipulate the election system to exclude his principal opponent, creating a religious and regional divide for the first time. At the same time he led the political elite in a “great feast” of corruption, as Ivorians call it. Bedie was ousted in an opportunist military coup on 24 December 1999. Military rule is not for Ivorians and a popular uprising forced military ruler and presidential hopeful General Guei to flee when he refused to acknowledge the election result.
President Robert Mugabe's great political failure was not to recognise MDC's supporters are mainly educated, urban youth wanting city-based jobs in a modernising economy. Mugabe's disastrous land reform efforts failed to address this, and his attempts to rekindle the racial divisions of the independence war and hatred miss the mark as most urban youths are too young to remember it.
Nevertheless, the long-term political risk trend in Zimbabwe is downwards as the succession issue appears to have clarified. MDC's Morgan Tsvangirai looks well placed to win presidential elections in 2002. Moreover, he fronts a modern, organised, non-racial, issue-based political party with a clear policy agenda. In spite of his background as a trades unionist, Tsvangirai's political manifesto is one which will rapidly draw business to - and back to - Zimbabwe: a liberal economic agenda, fast-track privatisation, development of modern communications' infrastructure and a tough stance on AIDS. His agenda is likely to win the ready support of the international financial community that will be essential to prevent Zimbabwe's total collapse.
South Africa's new generation government has assumed the mantle of responsible government on the continent. It is the first government in Africa to reverse the rule for the elite by the elite: the primary policy objective of the African National Congress (ANC) is to improve the lot of the “formerly disadvantaged majority”. However, the government is careful not to do this at the expense of the economic environment. Prudent economic policies have allowed the government to dramatically improve the country's macroeconomic picture and at the same time increase real spending on health education and welfare programmes.
Challenges to the inherited nation state
However, unshackled by Cold War allegiances, and, to some extent, liberated by Western indifference to Africa's problems, the new generation leadership has felt free to challenge the sacred cows of the post-independence era. Most significant is the challenge to the artificial borders inherited from Africa's former colonial powers. In some areas, borders cleave traditional kingdoms, clans and language groups. For example, Nigeria's Yoruba tribe spans south-western Nigeria and southern Benin. Most of Africa's borders are anyway porous, unmonitored and therefore ineffectual.
Eritrea's independence from Ethiopia set a precedent for other challenges. The most significant one came when Rwanda and Uganda invaded Congo-DRC to protect their western borders from attack by remnants of the Interahamwe, responsible for the genocide of close to a million Rwandan Tutsi in 1994. Security needs have since been replaced by a desire to control eastern Congo-DRC's considerable agricultural and mineral resources. Congo-DRC's advanced state of political, institutional and economic collapse meant that the country was unable to resist the invasion. In 2000, Congo-DRC is at a political stalemate. None of the regional actors - Laurent Kabila and his allies, the governments of Angola and Zimbabwe in the west, Uganda and Rwanda in the east - has the political will, military strength, means, local or international support to bring the east-west conflict to any conclusive end. That said, the longer the stalemate continues, the greater the likelihood that Congo-DRC's current de facto controls will become accepted; more likely, the country will eventually split into three semi-autonomous regions.
Whatever occurs to the fragile alliance in the west and south, Uganda and Rwanda's militaries' comparative discipline and prowess will ensure that eastern Congo is colonised for the foreseeable future. Both countries have come to rely on revenues generated by gold and diamond exports: both commodities are sourced in Congolese areas under their control.
President Charles Taylor's support of Sierra Leone's brutal rebel Revolutionary United Front (RUF) is a more naked example of cross-border expansionism to gain control of the collapsed state's diamond wealth.
A challenge to Nigeria's federal state
The repercussions from Congo-DRC and Sierra Leone's collapse have valuable lessons for greater African nations where political, social, institutional and economic decline is advancing. Nigeria is Africa's most graphic manifestation of the disastrous political effects of rule by the elite for the elite. Decades of military rule centralised political power and economic control to senior echelons of the military and a civilian minority. In spite of recent token moves towards democracy, government is still government by patronage. Traditional chiefs, long co-opted into the patronage system, have left rural areas for the cities. The trickle-down economics of rule by patronage never works: Nigeria is littered with phantom roads, hospitals and community centres for which federal government has awarded funds but which never get built, while rural ethnic groups have been left impoverished and leaderless. In Nigeria's oil-producing Niger Delta region, this has encouraged the emergence of an organised militant rebellion against the state. Traditional leaders' objections are disregarded as youths from the Ijaw clan claim the Western Delta and all the oil produced there and offshore as their own. Ijaw militants claim that with six million people and oil wealth they should be an independent nation. To press the claims, they have cleared Bayelsa state of all representatives of federal law enforcement and have launched an ethnic cleansing campaign to rid the area of non-Ijaw groups. What's more, they have started kidnapping foreign oil workers and attacking oil installations to increase pressure on government and stock their coffers.
The Ijaw is a minority group in a nation which invariably votes according to ethnicity. In contrast to Zimbabwe, there is no evidence that Nigeria's return to civilian rule has brought with it issue-based “detribalism”. As Nigeria's fourth largest ethnic group, the Ijaw's political clout will nevertheless always be diluted by the three dominant ethnic groupings, the Ibo, the Yoruba and the Hausa-Fulani.
In spite of its vast wealth, Nigeria's internal political economic and social decay is far greater than is recognised by the country's newest friends, the US and South Africa. Nigeria's military, police, civil service, judiciary, education system, roads, air service and communications infrastructure are in an advanced state of decay. Poverty has encouraged the growth of Islamist and Christian fundamentalism that has deepened the country's north-south divide. If allowed to continue, Nigeria's weak internal structures pose a significant threat to the country's internal security and future as a sovereign state.
Regular elections generally improve the long-term political risk profile of a country. However, elections pose a singular set of political risks for business. Until institutions are strengthened and while economic conditions are poor, regular elections raise the risk of throwing up maverick populist politicians who may alter legislation or introduce anti-business restrictions in response to popular demands. As in most western democracies, economic management around elections becomes dedicated to vote-catching. Shortly after Ghana's second democratic presidential elections in 1996, the architect of Ghana's model economic restructuring programme resigned after 13 years in office; government spending during elections had increased the budget deficit throwing Botchwey's economic programme off track.
Regular changes of government in Africa pose a new challenge to business. During the post-independence era, business and international governments developed a single set of relationships with the president and his immediate circle. Corporations now need to be seen to be neutral and even-handed in relations between government and opposition parties.
Economic liberalisation itself increases currency risk for business. Like Ghana, most sub-Saharan African countries have followed stop-start economic reform programmes, placing their currencies under repeated strain. With the exception of Botswana, international businesses need to take steps to hedge against declining national currencies. The lightning speed of political reactions to events such as currency collapse means that businesses have to monitor global and regional events and maintain flexible contingency plans.
Operational risks are considerable. The legacy of rule by the elite for the elite poses considerable operating risks for business. Bureaucracies are bloated, corrupt and inefficient through decades of nepotism. Few bureaucracies outside South Africa have computerised systems and businesses are frequently asked to communicate by telex; to find a telex machine is a challenge to most modern businesses. Most other official documentation has to be filled in by hand, in triplicate. Insecurity of hard copy files presents corrupt officials with endless opportunities for extortion. Files are “lost” and will only be found again on payment of cash - usually in dollars.
Nepotism continues: businesses report that officials frequently demand jobs for friends and family. Infrastructure and public utilities are in an advanced state of collapse after decades of under-investment and mismanagement. Businesses in countries like Nigeria and Kenya often have to provide their own electricity and water services, increasing investment costs considerably.
Political transition from one system of government to another carries considerable political risks. When this transition is prompted by social upheaval and is coupled with economic transition, risks are greater. However, sub-Saharan Africa is the least developed region in the world and presents businesses with considerable opportunities. Moreover, Africa rewards pioneering businesses which face up to and seek to manage these risks with higher returns.
Tara O'Connor is Regional Manager, Africa for business risk consultancy Control Risks Group.