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Control Risks and Oxford Economics have released the 2018 Africa Risk-Reward Index, a study that evaluates the risk and reward of investing in Africa. The research found that East African countries offer the highest rewards for investors, with Ethiopia, Tanzania, Kenya and Uganda leading the field.

Risk reward Africa investmentWhile broad political change has led to an improvement of the risk-reward score in many Southern African economies, these countries continue to lag behind their East African counterparts. Zimbabwe leads with the largest positive change, followed by Mozambique and South Africa.

“South Africa, Zimbabwe and Mozambique have seen remarkable changes since the last edition of the Africa Risk-Reward Index published in September 2017,” says George Nicholls, Senior Partner for Southern Africa at Control Risks.

“In South Africa, investor confidence has improved, following the appointment of Cyril Ramaphosa as state president, as the implementation of policies – intended to consolidate fiscal expenditure and tackle corruption in public institutions and state-owned enterprises – increases opportunities for doing business. But deeply entrenched patronage networks and electoral pressure ahead of the 2019 general elections will mean that it will be a long road to recovery for the country.”

Nicholls says that Zimbabwean President Emmerson Mnangagwa’s fiscal and pro-business reforms have led to the highest improvement of the reward score in Africa. Although Zimbabwe still struggles with a severe liquidity crisis that will not be quickly solved, there has been a notable uptick in investor interest and an upgrading of growth forecasts. However, a degree of political uncertainty persists in light of an upcoming general election and conflicting interests within Mnangagwa’s cabinet.

“Mozambique records the strongest improvement in the reward score after Egypt. It has adopted a pro-investment stance and sought to reduce the state’s involvement in the economy by restructuring or privatising state-owned enterprises. These reforms have helped stabilise a fiscal situation that once looked decidedly shaky, and opened up new opportunities for foreign investors in sectors such as energy, infrastructure construction and transportation,” Nicholls adds.

The Index found that Angola’s leadership change has not yet improved its reward score, but its risk score has gone down. New opportunities for foreign investment in sectors previously dominated by companies linked to the former president and his family are available as a result of President João Lourenço’s efforts to dismantle his predecessor’s networks. Combined with an improved regulatory environment, investors can seek opportunities predominantly in the oil and gas, diamond, and telecommunications sectors.

Similarly, Senegal’s growing investment and a reduced risk score presage continuous growth. Under the Emerging Senegal Plan, growth has increased steadily over the last three years, reaching close to 6.4% in 2017. Growing exports, a more diversified economy and increased interest from large international investors as a result of the promising offshore oil and gas discoveries make Senegal one of the poster children in sub-Saharan Africa. The reduction in its risk score is one of the most positive changes in the 2018 Africa Risk-Reward Index.

Côte d’Ivoire, has a forecasted real GDP growth rate of 7% in 2018. With reforms to the business environment and efforts to bring foreign investors back after the 2010-2011 crisis, Côte d’Ivoire has achieved among the highest growth rates in the world in recent years, and sectors such as construction, telecommunications, banking and retail have seen considerable growth. However, severe obstacles to a full recovery persist, including political interference and corruption, socioeconomic discontent, shortcomings in security-sector reform, and growing competition ahead of the potentially volatile 2020 presidential poll.

Image credit: Copyright: toonartist / 123RF Stock Photo

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