Political Uncertainty Obstacle to Investment in Africa

By Irene Gaitirira
Published April 10, 2018

Political uncertainty and weak macroeconomic situation account for fewer deals in Africa’s largest markets.

Imad Mesdoua, senior political risk consultant at Control Risks, says governance issues and weaker economic signals across key African markets are causing concerns among would-be investors.A report by business risk analysts Mergermarket and Control Risks says political risk shall remain a major concern for Mergers And Acquisitions (M&A) across the continent in 2018.

The report titled Resourceful dealmaking: Outlook for M&A in Africa shows a dramatic fall in M&A activity, with declines of 25% in volume and 26% in value in the first half of 2017, compared with a relatively buoyant 2016.

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“The drop-off signifies growing investor anxiety surrounding governance issues and weaker economic signals across key African markets,” says Imad Mesdoua, senior political risk consultant at Control Risks. “Specifically, political risk and transparency concerns have become the principal obstacles to successful acquisition in Africa. Ethical and compliance considerations are another major factor clouding the outlook for potential investors.”

Resourceful dealmaking: Outlook for M&A in Africa predicts that Political risk shall remain a major obstacle to dealmaking in Africa over the next 12 months of 2018. Other areas of concern for doing business in Africa include transparency concerns, completeness of information, and compliance and integrity issues.

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Control Risks specialises in business risk consultancyAccording to the report, getting caught up in a regulatory or criminal investigation is one of the highest risks in relation to a target company’s ethics and compliance standards.

Consequently, more than two thirds of people interviewed for the survey say they are pursuing co-investment strategies in Africa as a means of allocating risk more effectively.

“Political risk will continue to pose a major challenge to M&A activity on the continent as several large markets such as Nigeria undertake difficult elections and unpopular reforms to improve their economic outlooks,” Mesdoua says.

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