Reassessing political risk

By Ravi Bhatia | Published:  15 November, 2011

In the wake of the Arab Spring, the time has come to reassess political risk in sub-Saharan Africa

Beginning in Tunisia, the Arab Spring has spread across Egypt, Bahrain, Yemen, Libya, and Syria. By October, Tunisia’s ruler of 23 years had fled to Saudi Arabia, while Egypt’s Hosni Mubarak, a key Western ally in the region, was seen around the world lying on a hospital bed behind bars, on trial. In Libya, Muammar Gaddaffi was violently killed, having been on the run from the rebels who ended his 42 years of rule.

Against this backdrop, there have been calls to spread the revolutions to sub-Saharan Africa. Ugandan opposition leader Kizza Besigye, who lost February’s presidential election, called for “Egypt-style” protests against Yoweri Museveni. In Senegal, a man immolated himself outside the gates of the presidential palace in apparent imitation of Tunisia’s Mohammad Bouazizi, while in Cameroon and Angola there were calls for protests.

But as the dominos fell in North Africa, sub-Saharan Africa remained largely untouched, partly because unlike sub-Saharan Africa, a relatively homogenous culture across the MENA region facilitated the spread of the uprisings. A more important factor, however, is that since the 1990s democratisation has been on the march and political freedoms have been growing in many countries in sub-Saharan Africa

Whether as a result of advancements in mass media and mobile communications, or as a prerequisite to receiving foreign aid, democratisation in large parts of the region is work-in-progress, and political freedoms have undoubtedly been growing. Leading the pack are the likes of Botswana, Cape Verde, Ghana, and South Africa, all of which are active democracies; Burkina Faso, Kenya, Uganda, Tanzania, Zambia, Nigeria, and Mozambique are evolving — some from military dictatorship, autocracy, or war — and most can now be labelled, at worst, ‘flawed’ democracies.

Nigeria is a case in point: Africa’s most populous nation is widely viewed as near-ungovernable. Yet since it emerged from dictatorship in 1999, Nigeria has undergone profound change. In 2011 it held elections and, while they may have fallen short of best-practice, they were energetically, and for the most part peacefully, contested. Its federal structure has managed to balance regional religious and ethnic divisions, and has facilitated annual real GDP growth rates of close to 7 percent over the last decade.

Following the post election violence of 2007, Kenya has adopted a credible new constitution with much-improved checks and balances, while in late 2011 Zambia witnessed a fairly trouble-free handover of power.

While democracy remains far from perfect in much of sub-Saharan Africa, in many countries there increasingly are avenues available for voicing discontent. Even in relatively autocratic Angola and Gabon, the press and civil society enjoy more freedom than their North African and Middle Eastern counterparts prior to 2011.

In the wake of the Arab Spring, there is a need for investors to reassess their understanding of political risk across the continent. Historically, sub-Saharan Africa has been painted with a broad ‘high-risk’ brush, largely owing to perceived political instability across the spectrum. As a result, risk-premiums have been high. The realities on the ground are changing and require a more sophisticated, country-by-country analysis.

In a 2011 article titled “The Lion Kings?” The Economist noted with surprise that more than half of the world’s 10 fastest growing economies in the past decade were in Africa. Once investors start taking more trouble to assess political risks south of the Sahara, they will realise that many African countries are far more democratic than previously thought.

Ravi Bhatia is associate director, Sovereign Ratings, at Standard & Poor’s

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