Africa-Matters – post 1, Sub-Sahara Africa trends.

Dear Reader

This is the first post from Africa-Trends Matter. The blog is on political and business trends and risks in Africa. This first blog looks at Africa-wide trends and risks. There will be weekly updates on of the 8 countries we follow (Nigeria, Uganda, Kenya, Tanzania, Zambia, Malawi, South Africa and Ghana).

Next week will be on Nigeria.

The objective is to add value to investments and development plans in Africa or as a minimum provide inspiration for people interested in business, development and Africa trends. If you find the blog useful, please let me know. If you have suggestions, criticism or questions also let me know. To the extent possible, we are happy to provide additional more specific comments.

About Africa Trends Matter:
We are a small group of experts specializing in politics, growth and business development. We have all worked for 20 years or more at various levels in all the 8 countries. We have worked on oil and gas, political engagement, public sector reform, corporate social responsibility and tax.

Between us, we have developed a particular interest in trends and scenario planning.

The blog is written  using open sources of data, qualitative data and our own analysis and assessments.

If you want further information please contact us on contact@africatrendsmatter.com

Africa Trends – Sub-Sahara
Mega-trends:
  1. Continued growth for the short- and medium term. Growth will continue based on natural resources, IT/technology and pay-off from earlier reforms.
  2. The political “DNA” is not changing. African states and institutions are overall not getting stronger. Politics is driven by neo-patrimonialism. A few places see incremental improvements, but similarly, a number of places are stagnating or drifting back in terms of political and economic space. Limited capacity to handle crisis.
  3. Inequality is an increasing risk. Perceived and real gaps are becoming more visible gaps. Growth is largely jobless.
Issue
Parameters
Status, July 2014
Why
To watch
Present situation
Social development
Growth and macro-economy
Governance and security
Global drivers
Second best
Trend: ↘

Growth momentum continues, but risks increasing
Macro-economic stability continues →
Market size
Democracy ↗
Corruption
Security concerns ↘
Inequality
  • Increasing interventionism
  • Key infrastructure (power, harbours)
  • Popular dissatisfaction
  • Root causes and needed reforms progress
  • Major security incidents
  • China slowdown
Business implications:
  1. Market size and strength: Growing. Still substantial gaps with opportunities for good returns.
  2. Politics: More places see overoptimism in terms of investment attractiveness. Increasingly, populist interventions used (not directly against private companies). Trends increasing.
  3. Security: Overall increasing risks (Nigeria, Kenya and less likely – Mozambique).
  4. Contracts and contract sanctity: Formal legal frameworks are gradually improving. Yet contracts and contract sanctity issues remain a serious issue.
  5. Assets (staff, capital, profits): An area to keep monitoring. Large established companies will generally be safe, but expect regular upsets (taxes, currency controls)
  6. Regulatory framework (legal, regulation, enforcement, consistency): Formally improving in most places, but with equally increasing pressures to undermine the actual quality. Particular challenge for newcomers.
    Scenario status:
    We operate 4 core scenarios. Overall, there are most features from the 2nd best scenario with a few features from the top scenario (continued natural resource finds, G7 growth) and a few from the 3rd scenario (security, institutional reform speed, fiscal space and China slowdown). We are also closely following key political events – notably the Nigerian elections and the probability and impact of major security incidences. Core to moving to a better scenario would be about better use of natural resources and better fiscal management and public sector spending, probably pushed by a more engaged middle class.
    Reforms and addressing root courses: Most countries and governments are aware of key root causes and have various degrees of credible plans to address them. Urban middle classes increasingly demand action. Yet most leaders are struggling to find space between vested interests, short-term political pressures and popular demands. The result tends to be very limited progress in terms of systemic reform. A range of technical reforms – incl. business environment reforms are still making progress, even if the overall trend tend to be towards more interventionism and populist focus.
Big picture risk to watch: Complacency caused by overoptimism and overconfidence. Fundamentals are still weak and many countries struggle with large fiscal deficits leaving very limited fiscal space in case of a slowdown. Infrastructure (power, roads, harbours) reaching breaking points with slow, inadequate responses – often complicated by vested interests. Should be seen in light of increasing business need and increased public expectations. Gradual increasing domestic protests – ranging from peaceful, constructive protests (social media, peaceful, organised street protests) to large, spontaneous protests, driven by inequality and demand for better accountablity.
Reform drivers: There are still reformers in governments and a number of leaders have good intentions, but their power and space is limited. Parts of urban middle classes can be a driver of reform, but will need to up their game if they want real influence. Civil society may be a driver, but the core narrative remains poorly coordinated and overly interventionist in most places. The international community can drive some reform on the margins (eg. on corruption, trade and security). In the places where fiscal space is increasingly limited crisis or risk of crisis may be a driver of reform.
Indicators, data and resources:
We base our assessments on a range of indicators and resources. The World Bank CPIA, indicator of public sector quality: the Mo Ibrahim index (especially on business and rule of law) as well as the Failed States index are some of my key resources. 

We are presently analyzing some of the conflict and stability data in further detail by looking for correlation to grown. I also follow a large number of indices, blogs and social media discussions on cost of doing business, corruption and quality of institutions. The rating agencies, in particular Moody’s and Fitch are useful, although we often find their analysis slightly behind the ball. Updates and analysis from Control Risks, Oxford Analytica and Africa Confidential and outlooks for large corporate investors (Ernst and Young most recently) is also valuable.

For scenarios and understanding the fundamentals, we are particularly inspired by Paul Collier, Lant Pritchard and much of David Booth’ findings. The actual scenarios are inspired by Matthew Burrow’s global trends as well as the UK and US global strategic trends analysis.
All of the above are publicly available sources.

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