Sub Saharan Africa: Mid - term 2010 Political Risk Scorecard

Published on by KANYARWANDA

African Market Risk Report :
Sub Saharan Africa: Mid - term 2010 Political Risk Scorecard
(08.07.10 )
 
 

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Half-way into the year, the worst fears on political risk in Sub Saharan Africa are yet to materialise. They probably wouldn't, for the rest of 2010. But concerns on how adverse political events might weigh on performances in the major markets of the sub-continent will remain for the rest of the year.

Perception of political risk in SSA will little change for the rest of 2010, regardless of this mid-term audit which shows no indications of heightening of the risk events. By implication, the markets will under-perform this year even if collectively they hit average 5 per cent GDP growth projection of the IMF. For slightly different reasons, Africa's Frontier Emerging Markets (FEMs) have failed so far to boost investors' confidence. The reason is because they have failed so far to dispel the fears.

From one country to another, the fog over the political atmosphere in SSA varies in density. A country by country analysis would be unnecessary as capital flows to the sub continent is largely received by the FEMs. Using the criteria of investible capital market - existence of stock exchange, political reforms and GDP growth rate, IMF's David Mellor in 2008 named Nigeria, Ghana, Uganda, Kenya, Tanzania, Zambia, Mozambique and Botswana as the FEMs in Sub Saharan Africa. It is important to broaden the factors to be able to cover the major concerns, and also reflect the other countries which have since featured prominently on the radar of investors.   Therefore, I'm inclined to look at South Africa which is seen as an Emerging Market (EM). Angola might have seen a setback in launching its stock exchange, but the country is Africa's second highest oil exporter and its capital Luanda is now the world's most expensive city for foreigners. Rwanda is also included for its fast pace transformation and growth of the service sectors. All these countries should provide the market-relevant picture of SSA political risks in the first and second halves of 2010.
 
Succession Politics
Nigeria so far offers little assurance on inter-regime transition. This is not withstanding the demise of former President Umaru Yar'Adua which has seen his deputy assume the office of President and Commander-in-Chief of the Armed Forces. For about four months, political intrigues delayed Goodluck Jonathan's exercise of presidential powers and ascension to the presidency while President Yar'Adua was incapacitated to rule by a heart condition. In that period, enough political manoeuvring showed that succession politics remains complicated in Nigeria. It doesn't seemed to matter how straight-forward process it is in the constitution. Nigeria became more or less rudderless between last November and early May.
 
Two months into his presidency, Goodluck Jonathan is still quite busy courting power. His political future is not assured. An extra-legal rotational arrangement of his party - People Democratic Party (PDP) - sees him (a Southerner), in effect, a temporary custodian of a mandate of the North to be president from 2007 to 2015. Little doubt remains whether President Jonathan would like to change the preposterous view of the presidential election by the governing PDP. The party chooses its presidential candidate by deciding where he or she can or cannot come from in an attempt to avoid domination of the country by leaders from one side of the two main divides.  But this is also in the assumption that the candidate so decided automatically becomes the next president of the country, months before the election.
Should President Jonathan achieve this change, it would be a weak one indeed. Considering the time it might take to achieve a consensus in his party, wider electoral reforms recommendations which civil society groups say they endorse 100 per cent, might be substantially jettisoned by the regime. Thus, much of what Nigeria might witness is modest change to electoral practices as opposed to enactment of laws to reform and safeguard the electoral process for free and fair election.
 
Nevertheless, realising the little changes will potentially snag other needed policy reforms that might affect performance of the Nigerian market for the remainder of 2010. Whereas the country's Minister of Finance is formerly a Goldman Sachs egghead, a Reuters report in May, said Mr. Segun Aganga's ability to introduce needed reforms and bring his influence to bear on public finance, will be severely weakened by political expediency of the administration. His call for establishment of a Sovereign Wealth Fund for the country requires, at the minimum, cooperation of the state governors. But they are more interested in having the monies (naira and dollar) in the Excess Crude Account - a pseudo SWF - shared in the months leading to the election year.
 
While the Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, has been quite active with doling out prudential guidelines to the banks, election spend is expected to rein on inflation targets, and possibly push the rate further into the double digits way into 2011.
 
The same risk of slowdown to creation of economic values through the support of governance and market reforms is a threat to continued recovery in Zambia. So far, the economy of the East African country looks steady on the path of growth of about 6.8 per cent GDP in 2010. This would be achieved on the back of demand-driven increase in the production of copper. As the Economist Intelligence Unit (EIU) projected, President Rupiah Banda is poised to benefit immensely from the incumbency factor. But the fear factor is whether the April 2011 election will expose the Zambian economy to policy failure at a crucial point in time - the outset of another round of global economic growth.
 
Similarly, political risk is the perceived element that will negatively influence Kenya's business and investment environment this year. Earlier in April, a Kenyan-based research firm - Synovate - found in its Kenya Business Leaders Confidence Index, that perceived political risks have been on an upward trend in the country.  The study reveals that 76 per cent of the business leaders surveyed considered political instability to be the main risk to their businesses currently.
 
However, nothing has polarised Kenyans this year more than a constitution amendment proposal which has contentious clauses which include adoption of the Kadhi Courts, abortion rights and infusion of certain "international laws".  At a "NO" rally for the proposed amendments in June, an explosion went up at the Uhuru Park venue, killing six people. Over 100 other demonstrators were injured. A media report said government-backed rival "YES" campaigners were responsible for the blasts.
 
The coalition government headed by President Mwai Kibaki and Prime Minister Raila Odinga are all for the referendum scheduled to hold on 4th August, in spite of calls for its cancellation by the opposition. But the presidential election slated for 2011 might likely fracture the alliance between the two leaders. Lately, reports have it that power transition in Kenya is likely to be a "family affair", as Kibaki's eldest son is anticipated to want to succeed his father. Perhaps, the health condition of Mr Odinga after a recent brain surgery will be the restraining factor in squaring with the candidacy of Jimmy Kibaki.
 
In the case of Uganda, President Yoweri Museveni who has been in power since 1986, is expected to seek re-election next year. Having abolished Ugandan presidential term limits in 2005 to pave the way for endless self-succession, the process is fairly smooth for him. Nevertheless, presidential polls in 2001 and 2006 were marred by claims of fraud and violence.
 
The stakes for Uganda's topmost political office are higher going into the 2011 election. In 2009, oil was discovered in commercial quantity in the Lake Albert region of the country. The commodity is known for its divisive role in poor countries. Already, the opposition has threatened violent change, although it is with regard to President Museveni?s firm grip on the electoral process. He reappointed top officials of the country's electoral body last year, against call for election officials to be more independent.
 
Political Violence
So far, the grimmest news is from Rwanda, where increasingly, President Paul Kagame is said to brook no opposition. A near fatal shooting of Lieutenant General Kayumba Nyamwasa by a gunman in South Africa has been said to be at the instance of the regime in Kigali. Rwandan opposition leader, Victoire Ingabire, accused President Paul Kagame of orchestrating the hit, as political tensions rise ahead of the country's elections this summer.
 
Nyamwasa had been an ally of Kagame. Both of them fought on the same side in an effort to end the Rwanda's 1994 genocide. But in February, Nyamwasa fled the country to South Africa having accused the president of corruption. A counter indictment had also been made by Rwandan officials, accusing Nyamwasa of terrorism and trying to destabilise the government.
 
This would be a serious cause for worry on Rwanda which is rapidly transforming its domestic economy, and has been an unlikely regional champion in the implementation of the East African Community regional integration process, including the Common Market Protocol.
 
Political repression might be pushing Rwanda towards the precipice of large-scale political violence. Referring to the attack on Nyamwasa, Ingabire said "This incident is a nefarious conspiracy for disruption of peace in Rwanda, a country sinking deeply into a political and military crisis." In spite of President Kagame's success in pushing economic reforms in Rwanda, the opposition leader said: "The lack of political space, the arrest of opposition leaders, lawyers and senior military officers, the use of violence and all kinds of intimidation of dissenting voices are obvious signs of a country on the brink of chaos."
 
However, the threat of political violence in Angola is isolated to Cabinda, and not countrywide. The oil-rich region rose to international notoriety in January 2010, when militants of the Front for the Liberation of the Enclave of Cabinda (FLEC) fired several bullets on the bus conveying the Togolese national team to the African Cup of Nations hosted by Angola. 
 
Since the incident, several arrests have been made in Cabinda. The political tension is quite high in the oil-rich region. But complaint of little benefit from oil extracted in the region is not a cause of worry for high impact civil strife yet. Three decades of "mostly low-level insurgency against the government" even means disruption to production in Angola?s offshore oil wells is completely ruled out, according to a Reuters report.
 
Wage Dispute with Government
South Africa's trade unions are believed to be using the hosting of the 2010 FIFA World Cup in the country as a bargaining chip. Labour federation - Congress of South African Trade Unions (COSATU) - which had been an ally of the ANC government of Jacob Zuma, is pressing for above-inflation rate pay increases.
 
COSATU's affiliated public service unions and the Independent Labour Caucus, which represents 14 unions and about 1.3-million state employees, declared a wage dispute with the government on June 30 - about 48 hours to the quarter final matches. While the union might have targeted the World Cup for getting the attention of the government, there are implications that might remain after the competition would have been concluded on July 11.
 
The chief concern is the possible fracture to the close alliance between COSATU and the ruling ANC. Threats of major job losses due to mass sack already affects business sentiment. The South African Chamber of Commerce and Industry (SACCI) cited threats of labour unrest among the reasons for a dip in its confidence index for May.
 
Dutch Disease
Ghana enters an unfamiliar phase of its national development in the final quarter of 2010, when the country will begin to export crude oil from its proven reserve of over 800 million barrels. Getting ready for this has involved a couple of policies to insulate the country from the "Dutch Disease" phenomenon. These policies will come under test when Ghana's revenue from oil begins to stream in.
 
Perhaps fortuitously, Ghana seems ready for the challenge, having stabilised the polity and held successful elections that saw two transitions of power to the opposition party. This culture will be tested and it will simply be a wait and see factor how the colouration of Ghana's political risk changes with more revenue from October.
 
Development Conflicts
Botswana's political reputation is that it is arguably the most stable nation-state in Africa. Even the country's economic outlook is improving after the sharp fall in the price of diamond during the last global recession which threatened the stable fiscal regime Botswana had had over the past years.
 
In the context of Africa, SSA specifically, it is interesting to note that concerns on Botswana centres on conflict of development. Yet the highest level of concern has been raised about the denial of access to water (borehole) to the country's indigenous people who were reinstated to their land at the Central Kalahari Game Reserve by a landmark court ruling in 2006. According to South Africa's Mail & Guardian in early June, "The Bushmen returned to the court in a bid to overturn the government's stance, which has drawn the criticism of the United States department of state and the United Nations special rapporteur on indigenous peoples."
 
The UN Human Rights Council is now looking at a report which says Botswana government's denial of services to Bushman communities in the reserve "does not appear to be in keeping with the spirit and underlying logic of the 2006 decision, nor with the relevant international human rights stands", M&G reported. As Botswana aims at increased income from tourism, paradoxically, it's actions in that regard are attracting negative comments from the international community.
 
By Jide Akintunde, Managing Editor, Financial Nigeria. Email: jide@financialnigeria.com

This article was first published in the July 2010 edition of Financial Nigeria magazine - a monthly Development & Finance journal. To subscribe to it, click here

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