Navigating Political Instability in African Markets

Businesses and investors across sub-Saharan Africa have been confronted with significant challenges and uncertainties in the wake of recent military coups. With ongoing conflicts in Sudan, Libya, and Ethiopia, alongside terrorism in Somalia and other parts of the Sahel region, the business environment in certain areas of West Africa has become increasingly volatile for corporations operating on the continent.

The repercussions of this instability are substantial and have the potential to lead to broader conflicts or spillover effects that impact regional stability. These regional conflicts have negative effects on African industries and present obstacles to the successful implementation of the AFCFTA, an initiative aimed at establishing an integrated single market in Africa.

As a result, organisations operating in Africa must now acknowledge and address the potential impact of political instability on productivity and business growth. They must remain vigilant in order to effectively monitor and mitigate political risks and instability.

For instance, the conflict in northern Ethiopia resulted in infrastructure damage totaling $22.7 billion and productivity losses of $6 billion between November 2020 and December 2021, equivalent to about 26% of the country’s GDP. The Tigray conflict caused a humanitarian crisis and had a significant impact on Ethiopia’s economy, affecting food security, human development, employment, inflation, education, health, macroeconomy, and MSMEs.

In response to these challenges, SBM Intelligence released the inaugural edition of the Africa Country Instability Risk Index (ACIRI) in October 2023. This comprehensive report was designed to provide valuable insights into the instability risks and shocks faced by each African country, excluding North Africa, providing benefits to businesses, multilateral organisations, investors, and stakeholders.

Since August 2020, Africa has experienced seven military coups, impacting Mali, Guinea, Sudan, Burkina Faso, and Niger. These coups have negative implications for businesses due to regime changes, conflicts, and uncertainties in government policies, laws, and regulations, which affect industries and a nation’s economic and governance landscape.

The report categorised risks as Red Watch, Warning, Critical, Vulnerable, Stable, and Safe, with certain countries falling into each category. Political instability has had a significant impact on sub-Saharan Africa’s GDP, which fell from 4% to 3.3% between 2022 and 2023. Also, double-digit inflation rates are affecting approximately one-third of the countries in the region.

Despite these challenges, there are economic promises and opportunities in agriculture, mining, and tourism in West Africa, while the Central African region faces hindrances to development and stability due to historical coups and civil wars. Additionally, the East African region faces challenges but offers opportunities in agriculture, tourism, and telecommunications. The Southern African region also presents opportunities for businesses and investors despite economic inequality and political instability in certain areas.

It is crucial for investors, stakeholders, and policymakers to thoroughly understand the causes and consequences of political instability in order to make informed decisions and develop effective strategies. By engaging in political risk management, organisations can effectively monitor and respond to potentially damaging policies or conflicts, as well as identify potential opportunities for their business.

Ultimately, it is vital for governments at all levels to create an enabling environment to foster peace and stability so that businesses and economic activities can thrive in African markets. In navigating this dynamic market, cautious decision-making and access to adequate information are essential.

In conclusion, economic growth and political stability are deeply intertwined. Therefore, in today’s global market, business leaders must carefully consider political and economic risks as they navigate the complex landscape of investing in emerging markets.