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Electoral cycles have long been a sticky issue for Africa’s business communities. Elections often evoke fears that a regime change will bring uncertainty and instability, two characteristics investors try to avoid in their portfolios.
These reservations aren’t unfounded: Kenya’s bungled 2007 election crippled the East African region and forced landlocked economies such as Uganda and Rwanda to bear the brunt of post-election chaos. Investors expect some inherent risk in emerging economies, but at some point, they draw a line.
So it was with great trepidation that foreign investors watched Africa’s 2015 political season, waiting to see how governmental shifts would affect their expansion opportunities. But with successful elections in Nigeria, Ethiopia, Tanzania, Ivory Coast, and the Republic of Congo, it appears that the naysayers have been proven wrong. Decades of progressive reforms throughout the region are finally bearing fruit, and they bring immense investment options with them.
Changing Climates, Changing Fortunes
The following three countries are prime examples of how improved political climates are ushering in an era of prosperity:
A largely peaceful polling process in Nigeria’s 2015 presidential race highlighted the disconnect between perceived and actual risk in African economies. Despite operating in a political climate undermined by the extremist group Boko Haram, the All Progressives Congress enjoyed a smooth handover from the People’s Democratic Party, a milestone in and of itself. Yields in the fixed income market showed a significant downward correction after the election, and the Nigerian Stock Exchange’s NSE 30 Index exhibited a strong rebound around the same time.
The historic election proved that investors must reconsider their fears about expanding into Nigeria — not only for their own benefits, but also for the sake of regional growth during the next 10 years. Misguided generalisations have unduly amplified perceived risks, a situation exacerbated by last year’s Ebola outbreak in Guinea, Liberia, and Sierra Leone; radicalization in Kenya and Nigeria; and economic slowdowns in South Africa and Ghana. Nigeria’s most recent election is proof that the political climate here and in other African countries is stabilising, which unlocks numerous investment possibilities throughout sub-Saharan Africa.
Investors began taking Kenya more seriously in the past decade, after recent election cycles seemed to indicate a stronger, more secure government system. The 2013 election in particular marked a turning point for the country, and it proved that recent reforms had effectively reduced violence and unrest. Since then, Kenya’s growing economy has become increasingly attractive to investors, especially with the explosion of its fintech sector.
A hotly contested 2014 election reinforced Malawi’s recent history of relative stability. Former President Joyce Banda peacefully ceded power to then-opposition leader Peter Mutharika, bolstering confidence in this small but growing economy. African Agricultural Development Company, the social impact investor known as AgDevCo, made a US$2-million equity investment in the Malawian macadamia farm Tropha Estates in November 2014, and similar large-scale deals will emerge in the next several years.
Reforms and progress will continue to spread, driven in large part by the proliferation of social media. Platforms such as Facebook and Twitter have ignited the potency of the vox populi, allowing people to demand increased transparency and to hold their leaders accountable. As instability and violence give way to more democratic, open societies, investors will find a broad range of opportunities for connecting with millions of newly empowered consumers.
The recent stream of peaceful elections should prompt investors to not only look more seriously at sub-Saharan Africa, but also to revise their opinions on the region. Countries such as Kenya and Nigeria are setting new precedents that are transforming the continent. With elections scheduled in Ghana, Uganda, Rwanda, and Democratic Republic of Congo for 2016 and 2017, investors will want to watch the region closely. They’ll need to move quickly if they want to capitalise on these emerging but dynamic markets.
Image by United Nations Photo via Flickr