Businesses operating in Africa are exposed to a myriad of external risks which can have a material impact on their operations and financial performances. Tower companies and their suppliers are not immune to these threats, with the physical nature of their assets and operations increasing their susceptibility to some risk factors. Here, BMI highlights the most salient political, economic and security risk elements that players in the towers ecosystem need to be aware of and make plans to mitigate over the next one year.
Political - elections, Presidential succession pose key risks in 2015
Elections will raise political tensions in Nigeria, Côte d’Ivoire and Tanzania in 2015 while succession issues plague presidents in Zambia, the Democratic Republic of the Congo (DRC) and - potentially - Zimbabwe. Ghana, Kenya, and South Africa will face pressing political and economic challenges.
Elections will raise tensions
Nigerian President Goodluck Jonathan will likely win a controversial second full term in polls scheduled for February 2015. His long-ruling People’s Democratic Party runs a powerful electoral operation, and the benefits of incumbency will counteract a mixed record. Another term for Southern-born Jonathan will be seen by many as violating the norm that power should alternate between the Muslim North and Christian South. Nigerian elections are usually accompanied by violence, and the 2015 poll will be particularly divisive due to Jonathan’s controversial candidacy.
Côte d’Ivoire also faces a divisive election, with President Alassane Ouattara seeking a second term in October. Ouattara took office in 2011 after incumbent President Laurent Gbagbo’s refusal to admit electoral defeat led to widespread violence. Many supporters of the former president - currently awaiting a trial in The Hague - still see Ouattara as a foreign-backed usurper. Gbagbo’s Front Populaire Ivorien will likely boycott the 2015 poll, assuring an Ouattara victory but hardening political divisions.
Tanzania will also go to the polls in October, but we expect that election to pass smoothly. President Jakaya Kikwete is ineligible for a third term, so the real contest will be for the nomination of the dominant Chama Cha Mapinduzi (CCM). The CCM candidate will win the election, but the campaign may force the introduction of more populist policies.
The long goodbye
Term limits will pose less of an obstacle in the DRC, where we expect President Joseph Kabila to amend the constitution in order to remain in office after 2017. The move will be controversial, leading to protests in Kinshasa. The 2016 poll is unlikely to be free or fair, and a Kabila victory will lead to protests and violence similar to that seen in 2011.
Zambia’s President Michael Sata, on the other hand, will likely be forced out of office early by ill health. Vice President Guy Scott is ineligible to replace the ailing president - who has not been seen in public since June - and this will trigger a divisive leadership contest within the ruling Patriotic Front. A similar transition may occur in neighbouring Zimbabwe; many see the rising profile of Grace Mugabe as a form of succession planning by her 90-year-old husband, who has ruled the country since 1980.
Difficult decisions ahead
Political risks will also be elevated in Ghana, Kenya, and South Africa. Ghana’s fiscal crisis has forced Accra to seek assistance from the IMF, and implementing an austerity package will be controversial. Finance Minister Seth Terkper may be pushed out of office. Kenya President Uhuru Kenyatta has seen his ICC trial suspended, but faces opposition calls for another constitutional referendum. Another terrorist attack in Nairobi would rock the government and destroy the struggling tourism sector. South Africa’s Jacob Zuma has consolidated his hold on power, but the strong performance of the Economic Freedom Fighters may pull the ruling African National Congress to the left.
Economic - policy and currency risks take centre stage in 2015
Africa will retain its status as the fastest growing region globally in 2015, with real GDP growth accelerating by 5.4%. This outlook is not without risks, however, with policy concerns and currency weakness chief among them.
Policy pitfalls
Budgetary concerns will remain at the fore in Africa over the next 12 months, with loose fiscal policy posing a risk to already weak fiscal positions, as well as sovereign credit profiles.
The Ghanaian government’s decision to approach the IMF in August for assistance has seen these risks subside to a degree, with IMF oversight likely to see government spending subject to greater control and monitoring.
Budget risks in Zambia - which sought IMF assistance in June - will remain salient. The authorities have pledged to tackle the deficit - we predict it will be worth 7.2% of GDP in 2015 - but we are sceptical given public sector wage pressures and an election due in 2016. These pressures are likely to be compounded by policy uncertainty, with wrangling between the government and the key mining sector over tax regulations, as well as fears over President Michael Sata’s failing health, posing a potential threat to future foreign direct investment (FDI) inflows.
South Africa’s economic woes will continue to cause a headache for policymakers. The monetary authorities especially must perform a delicate balancing act: supporting a spluttering economy and weak consumer on the one hand, while anchoring inflation expectations (and the rand) on the other.
Currency concerns continue
Most African countries will experience mild-to-moderate currency depreciation over the next 12 months. For a number of key economies we believe risks are weighted firmly to the downside.
A combination of weak export growth, high import demand and negative investor sentiment will see the Kenyan shilling continue to weaken gradually against the dollar. However, a poor harvest requiring higher food imports, or a terrorist attack targeting foreign tourists - a critical source of foreign exchange - could trigger a major sell-off.
The Zambian kwacha and Ugandan shilling have stabilised in recent months following significant volatility earlier in the year but we believe risks for both currencies are weighted to the downside. Investment-unfriendly policies and lower copper prices pose the major threats to the kwacha; in Uganda, renewed uncertainty over foreign aid and further setbacks to oil sector development pose the key risks.
The Ghanaian cedi has enjoyed increased stability of late amid improved sentiment (see above section). We expect the cedi to bounce back further over the coming weeks towards GHS3.30/USD. While this is likely to continue in the near term, the multi-year trend will be depreciation - albeit more mild than in recent years - owing to the wide current account deficit.
The negative outlook for African currencies poses a growing risk to the region’s inflation outlook over the next 12 months. Moderate food prices and prudent monetary policies have seen inflation fall in 2014 and, while we expect regional price growth to ease further in 2015 (averaging 7.5% year-on-year compared to 7.8% in 2014), currency-induced price pressures will pose a persistent threat.
Security - terrorism a growing concern
The most salient security threats in Africa relate to Islamic insurgency in parts of West and East Africa, and internal conflicts in some weak states in the region. With the military in many countries struggling to contain these threats, the risk of escalation in the coming months is significant.
Local militants gain international notoriety
Nigeria and its neighbours to the North East, Kenya, Mali and Uganda are the most vulnerable to the threat of Islamic militancy on the continent. Violent attacks by Boko Haram militants continue to rock northern Nigeria, with the potential for it to escalate in the run up to the 2015 presidential elections. There is also a risk of the country’s neighbours in the North East - Cameroon, Niger and Chad - to be drawn into what is shaping up to be a lengthy battle with against Boko Haram.
In Kenya, the security situation is deteriorating rapidly. The main threat remains increasingly frequent attacks by al-Shabaab and its affiliates, which are able to tap into a growing well of radicalised sentiment, driven both by the ongoing crackdown against Somalis and allegations of extra-judicial killings of Kenyan-based Muslim clerics. Al-Shabaab has used the presence of Kenyan soldiers in Somalia as a justification for its attacks, but President Kenyatta remains committed to the current deployment, arguing that abandoning the country would destabilise the region.
Internal conflicts isolated but potentially destabilising
Security is worsening across Sudan, particularly in the Darfur states, South Kordofan, and Blue Nile, which are all seeing fighting between the national military, its proxies, anti-government forces, and a myriad of tribal militias. Rising violence within the Arab community leads BMI to predict that President al-Bashir’s regime will continue to lose authority outside of Khartoum. We believe that, despite some victories in South Kordofan, the government will increasingly focus on regime survival rather than regaining control of outlying areas. Tellingly, the capital itself is now protected by a heavy ring of RSF soldiers, who man checkpoints in and out of the city.
Our core view is that violence in the Central African Republic (CAR) will continue over the coming months and that the recently-signed Brazzaville agreement offers no lasting solution. On-going conflict in the CAR has destroyed the impoverished state’s economy, infrastructure, and political institutions. Sectarian massacres by both sides will make national reconciliation difficult; violence has only declined because the Muslim minority has mostly fled Christian-dominated areas
BMI’s Ken Okeleke will be hosting a round table on “Country risk: How to prepare for short term ‘flashpoints’” at the TowerXchange Meetup Africa, taking place on October 20 and 21 in Johannesburg. For more information, visit www.towerxchange.com/meetups/africa
