Foreign investors cautiously optimistic about Africa, says risk expert

  

Despite a general consensus that Africa’s business environment is improving, political risk – whether perceived or real – continues to play an important role in foreign investment decisions. Alkan Shenyuz, managing director at UK-based firm Veventis, makes a living from providing emerging market investors with risk management solutions. How we made it in Africa recently spoke to Shenyuz about risk and foreign investment into the continent. Here are some edited excerpts:

Your company deals with many foreign investors with interests in Africa. Give us some insight into the things that pop up in conversations with these investors when it comes to doing business on the continent.

My clients are cautiously optimistic. They seem more and more informed than ever when it comes to issues of political and cultural diversity in Africa. They also seem more conscious of the need to work alongside the communities where they invest as part of their overall risk management structure. They tend to take a long-term perspective – not just [regarding] the rewards of doing business, but also risks of doing business. I think this carefully balanced approach will be enormously beneficial to all sides – whether it’s the investor, the people in these countries, the host governments and everybody else involved.

At the end of the day, Africa is often referred to as the final frontier. As long as people are educated about the risks, they can take a balanced approach.

Which African countries, in your opinion, have high levels of political risk?

I think the answer depends on whether you look at it in the short term or the long term… Today, I’m particularly concerned with events in Mali. Until recently the south of that country appeared to be relatively unaffected by the separatist threat coming from the north. But events seem to be moving very fast, and we’ve recently seen an influx of calls from clients with mining interests in the south looking for advice.

The Ivory Coast and the Democratic Republic of Congo also appear to be in serious difficulties and they are ones to watch in the short term.

In the longer term, however, the situation is less clear. I would like countries such as Nigeria and Tanzania to increase the pace of development… The reason why I single these two countries out is because I see them as critical to the improvement of the overall business environment in Africa because they are so resource rich, and the fundamentals are already in place, and any sort of slowing down of the rate of progress in these countries would, to a large extent, actually be a step backwards.

A company like Veventis clearly has an interest in Africa being portrayed as a risky place to do business. However, would you say that the risks associated with doing business on the continent have been exaggerated by the international media?

I would say risk, especially political risk, is a question of perception. At the end of the day, Africa is not a single marketplace – it is actually a vast continent of diverse people, cultures, geographies and systems of governance.

I’m actually quite surprised to hear how frequently commentators bundle the risks associated with one region with [that] of another, or they focus on one variant of risk in favour of another. The reason why there has been a steady growth in risk management services supporting inward investment over the last few years is because no two projects are the same. Each project comes with its own set of risks.

Investors often [need to establish] whether their own corporate culture or approach is likely to create potential risks in itself when entering markets in Africa. The question they need to ask themselves is whether they have addressed local concerns? Have they considered the environmental or social impact of their commercial decisions?

Commentators, the media, sometimes discount certain factors… And often the picture which results from that is one which doesn’t do justice to the situation.

Do you think the risks associated with Africa are worse than other emerging markets?

I don’t necessarily think so… I can probably think of a number of frontier markets outside Africa which present considerably risky environments to operate in.

Is it only the extractive industries that should be worried about political risk in Africa?

No long term project for investment is properly conceived unless the management of political risk is factored in. From infrastructure projects to fast-moving consumer goods – political risk in its wider sense doesn’t discriminate. Political risk can range from worker strikes to sudden changes in taxation, or changes to ownership rights. It can affect businesses in different ways. In recent months, strikes and violence in the South African mining industry has made investors in other sectors give political risk due consideration.

The answer for any foreign investment project in Africa is to anticipate risk – make sure you have a system of risk management in place to deal with [risk] when it arises.



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