The year 2018 is unlikely to herald the start of a new African debt crisis, but it will augur an end to the boon of high-yielding African debt, as governments continue to increase their debt and to postpone its repayment through refinance. EXX Africa assesses the implications in its latest special report.
In 2018, some of Africa’s recent growth champions like Ethiopia and Tanzania will pose significantly higher risk to investors, while the giants of Angola, Nigeria, and South Africa are set for a return to economic growth and investor confidence.
From the Zimbabwe coup and Kenya’s disputed elections, to the political transition in Angola’s oil sector. In this open article, EXX Africa lists its top five risk forecasts that were proven accurate over the past year.
Over the past year, the value of EXX Africa’s analysis has been demonstrated by the accuracy of numerous risk forecasts. While we cannot always be correct in our assessments, we do strive to deliver accurate, decision-ready, and commercially relevant forecasts on African security, political, and economic risk. We have chosen the below five risk forecasts of 2017 that have added most value to our Members and of which we are particularly proud.
TOP FIVE ACCURATE RISK FORECASTS FOR 2017
1) ZIMBABWE COUP At the end of 2016, we adjusted our baseline scenario for Zimbabwe to assess that a military intervention would be likely in the one-year outlook. This was based on intelligence of factional rivalries in the Zimbabwean military and an assessment that a looming economic crisis would again lead to delayed payment of military salaries. In November 2017, long-time president Robert Mugabe resigned after a military intervention forced him to vacate his office. This forecast was near perfect in its accuracy, timing, and detail of the military intervention that ended Robert Mugabe’s rule in Zimbabwe. It is therefore our top forecast for 2017.
SEE COUNTRY OUTLOOK: ZIMBABWE
2) KENYA ELECTIONS From two years before the Kenyan elections of August 2017, we reported serious violations of electoral process and attempts to manipulate the outcome of the vote. Based on this analysis, we assessed that the elections would be open to judicial challenges and that the levels of associated political violence would be higher than in 2012, though lower than after the 2007 elections. EXX Africa was one of the few risk advisories that believed that the first round election had indeed been compromised. In September 2017, the Kenyan Supreme Court took the unprecedented step of nullifying the first round election and ordering a re-run. President Uhuru Kenyatta subsequently won a second term in a disputed vote in October 2017 that was marked by localised outbreaks of violent unrest and an opposition boycott. While we could not have anticipated the Supreme Court ruling on the elections, our analysis on the protracted Kenyan election season was accurate.
SEE COUNTRY OUTLOOK: KENYA
3) ANGOLA & SONANGOL Former defence minister João Lourenço had always been shortlisted by us as one of the most likely successors to replace long-time President José Eduardo dos Santos. Since 2016, we also assessed that the first major political battle after the transition would take place over the future of struggling state oil company Sonangol. Following his assumption of office, President Lourenço dismissed the entire Sonangol board, including chairperson Isabel dos Santos. Since then Angola’s new government has made drastic overtures to improve transparency and stimulate the oil-dependent economy as it prepares to reach out afresh to the IMF and overturn four generations of an opaque status quo. Our forecast on the political transition and the role of Sonangol was accurate, though we remain amazed at the speed of change in Angola.
SEE COUNTRY OUTLOOK: ANGOLA
4) COTE D’IVOIRE MUTINIES EXX Africa had forecast the risk of outbreaks of mutinies in Côte d’Ivoire almost a year before the first barracks uprising in January 2017. Our assessment was based on the political rivalry over the 2020 presidential succession that has been at the heart of frequent military unrest. The mutinies have had serious economic implications, including port and bank closures. Massive pay-outs to mutinying soldiers and striking public sector workers have also put the budget under pressure. Moreover, without effective security sector reform and as a result of falling revenues, the government will continue to face frequent outbreaks of military unrest that will trigger an increasingly hostile public reaction.
SEE COUNTRY OUTLOOK: COTE D’IVOIRE (IVORY COAST)
5) SOUTH AFRICA ANC CONGRESS We had long been sceptical of a clear two-horse race in the contest to succeed President Jacob Zuma as leader of the governing ANC party. Instead, our assessment was that a compromise leadership slate would be negotiated on the delegates’ floor of the ANC elective Congress in December 2017. While an outlier scenario identified by us in which a compromise candidate would emerge from the floor did not occur, a negotiated settlement was indeed reached between rival factions. New ANC leader and Deputy President Cyril Ramaphosa’s authority will be reined in by Zuma loyalists in the new party leadership. President Zuma still controls the ANC’s top decision-making body, as well as the security and intelligence services. Therefore, Zuma’s removal from the presidency is only likely in case of a negotiated settlement, which could come in early 2018, or at least before June 2018. Our analysis of the political transition is ongoing, but we rate our forecast of the initial steps in the transition as accurate.
SEE COUNTRY OUTLOOK: SOUTH AFRICA
The value of intelligence is in its factor of surprise!
Record growth forecasts and slowing inflation will embolden the government to withdraw from an IMF programme in 2018, despite fears over debt sustainability and mounting contract frustration risks.
A recent accidental explosion in the capital Accra has mandated a fresh assessment of the risk outlook facing Ghana’s burgeoning oil & gas sector, including an intensifying demarcation dispute with the country’s neighbours, piracy, and the threat of socio-economic unrest.
A tribunal judgment drawing an ocean boundary favouring Ghana in a decades old border dispute with neighbouring Côte d‘Ivoire bodes well for increased oil production from early next year, which will be vital to meet conditions set by the IMF programme, although lingering risks still overshadow growth prospects.
Confrontations between a specialised military task force and illegal miners in Ashanti, Eastern, and Western Regions are likely to trigger violent retaliation with a fast path towards escalation in remote mining areas.
A trade dispute with South Africa over US chicken imports last year and an ongoing disagreement between the US and East African countries over used clothing imports indicate that some African countries are increasingly willing to forego privileged US market access, while the US government may move to repeal multilateral trade terms in favour of bilateral deals with selected African countries.
The decision not to extend the IMF programme may be aimed at extracting heavier concessions from the Fund in further negotiations; yet a departure from the IMF programme would raise serious concerns of debt sustainability, while raising risk of contract reviews in the construction, power and energy sectors.
New capital requirements are likely to trigger a fresh wave of consolidation, just as several new entrants join Ghana’s banking sector; yet the sector remains constrained by growing non-performing loans and over-exposure to the weak sovereign and struggling oil sector.
- EXX Africa director Robert Besseling moderated a panel on Africa’s commodity rollercoaster at GTR Commodities in Geneva hosted by Global Trade Review (GTR)
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